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a 


MARINE INSURANCE 




HEARINGS 

BEFORE THE 


7x?9 


SUBCOMMITTEE ON THE 
MERCHANT MARINE AND FISHERIES . 

HOUSE OF REPRESENTATIVES 


SIXTY-SIXTH CONGRESS 
FIRST SESSION 


JULY 9, 16, 17, and SEPTEMBER 25, 1919 


WASHINGTON 

GOVERNMENT PRINTING OFFICE 
1920 


trivM 






V 


SUBCOMMITTEE NO. 4 ON MISCELLANEOUS AFFAIRS OF THE MER¬ 
CHANT MARINE AND FISHERIES. 

House of Representatives. 

FREDERICK R. LEHLBACH, New Jersey, Chairman. 

GEORGE W. EDMONDS, Pennsylvania. LADISLAS LAZARO, Louisiana. 

CARL R. CHINDBLOM, Illinois. DAVID H. KINCHELOE, Kentucky. 

Rexe G. de Tonnancour, Clerk. 

2 


o, ®f 3. 

iUN 9 1920 


MARINE INSURANCE. 


Subcommittee of the Committee on the 

Merchant Marine and Fisheries, 

House of Representatives, 

Wednesday, July 9, 1919. 

The subcommittee this day met, Hon. Frederick E. Lelilbach 
(chairman) presiding. 

All the other members of the subcommittee were present. 

Mr. Lehlbach. This meeting is called pursuant to having referred 
to the Subcommittee on Miscellaneous Business a resolution adopted 
by the Committee on the Merchant Marine and Fisheries to investi¬ 
gate the question of marine insurance and to formulate legislation 
to provide for insurance for the merchant marine as it exists and 
as it will exist in the immediate future. 

I think the committee, in the first place, will be glad to hear from 
Mr. Hurley, on the subject. 

STATEMENT OF MR. EDWARD N. HURLEY, CHAIRMAN UNITED 
STATES SHIPPING BOARD. 

Mr. Hurley. Mr. Chairman and gentlemen, this branch of the 
service is most important. I am satisfied from the experience I have 
had in connection with the operating of the ships that legislation 
passed in,connection with marine insurance will be the. most impor¬ 
tant part of the legislation the committee as a whole will have to 
pass on. It is so vital to the future of our merchant marine that I 
am particularly pleased that there has been a subcommittee appointed 
to specialize on that particular branch of the legislation. 

The admiralty counsel, Mr. Griffin, and Mr. Ogden, who has 
charge of the insurance in connection with the Shipping Board, are 
here, and I am working to bring everything before you in connection 
with the insurance. I have had a committee appointed by the ma¬ 
rine insurance underwriters, and Mr. Rush, of Philadelphia, has 
submitted some thoughts in the direction of improved conditions. 
Mr. Ogden is familiar with every phase of the subject. We have had 
prepared a little memorandum that has been addressed to the chair¬ 
man and the other members. I am sure that Mr. Ogden and Mr. 
Griffin, our admiralty counsel, will be able to answer any questions 
in connection with this matter, especially technical questions that I 
am not familiar with except in a general way. 

Mr. Edmonds. You do not handle this insurance at all, except as 
a business proposition with another department? 

Mr. Hurley. Yes, sir. We appropriated $10,000,000 during the 
war to handle our w T ar risks. That is all covered in the memoran¬ 
dum. 


3 



4 


MARINE INSURANCE. 


Mr. Lehlbach. For the payment of premiums ? 

Mr. Hurley. No, sir. For the payment of losses. 

Mr. Edmonds. That appropriation went to the War Risk Insur¬ 
ance Bureau? 

Mr. Hurley. No; we handled our own appropriation. 

Mr. Ogden. The Shipping Board’s insurance and the War Risk 
Insurance Bureau, seamen’s section, Treasury Department, are en¬ 
tirely separate. 

Mr. Edmonds. You are doing virtually your own insurance? 

Mr. Ogden. Only the Shipping Board insurance, whereas the 
Bureau of War Risk Insurance insures for outside parties—com¬ 
mercial insurance. 

Mr. Edmonds. Will these gentlemen be able to furnish the com¬ 
mittee with a full statement in regard to that—how it operates at 
this time, and so forth? 

Mr. Hurley. Every detail of that; yes, sir. 

Mr. Edmonds. There is one other question. Who has been insur¬ 
ing the foreign ships? 

Mr. Hurley. The Dutch ships, when we chartered them, we in¬ 
sured them. 

Mr. Edmonds. You insured them? 

Mr. Hurley. During the war. 

Mr. Lehlbach. Some bureau was allowed to take the risk on for- 
eight ships? 

Mr. Ogden. That was the Bureau of War Risk Insurance; that 
is under the Treasury. 

Mr. Lehlbach. You had nothing to do with that? 

Mr. Ogden. No, sir. 

Mr. Lehlbach. You have a regular bureau formed in your de¬ 
partment for handling this matter? 

Mr. Hurley. Yes, sir. 

Mr. Lehlbach. That statement is, I presume, contained in this 
memorandum ? 

Mr. Hurley. Yes, sir. 

Mr. Lehlbach. You have taken certain risks, taken certain losses, 
and there have been certain results which you will be able to show ? 

Mr. Hurley. We show $27,000,000 profit in our war-risk bureau. 
We show 3 per cent profit on the marine risk; that is, on the marine 
premiums of $21,000,000. All of those things will be explained by 
Mr. Ogden, who has followed them closely. 

Mr. Edmonds. I should like to ask, Mr. Hurley, if you are going 
to submit a proposed bill, as we must have some legislative action 
before very long? 

Mr. Hurley. As you go along in the next few days we will have 
that ready in connection with the preliminary interviews. 

Mr. Lazaro. The bill? 

Mr. Hurley. Yes, sir. We have a bill now. I think that some 
of the members of the committee felt that Mr. Rush, who cooperated 
with us, had gotten a little in advance in drawing the bill, and we 
are getting it back so the other members of the committee will ap¬ 
prove of it before it is submitted. We did not want a minority re¬ 
port ; we want it to be unanimons. 

Mr. Edmunds. Is it your idea that this proposed legislation will 
take the Dlaee, of the marine insurance by the War Risk Bureau? 


MARINE INSURANCE. 


5 


Mr. Hurley. No, sir; we do not know anything about the War 
Hisk Bureau. We do not pay any attention to it; only to the Ship¬ 
ping Board. 

Mr. Edmonds. You do not want to make any recommendations on 
the value of the continuance of that? 

Mr. Hurley. No, sir; we have nothing to do with that. 

Mr. Edmonds. You just want to attend to your own affairs? 

Mr. Hurley. Yes, sir. 

Mr. Leiilbach. You pay no insurance whatever at any time to the 
W ar Risk Insurance Bureau, as I understand? 

Mr. Ogden. Practically everything was placed with the division 
of insurance of the Shipping Board, but in special cases a few ships 
were insured with the War Risk Insurance Bureau of the Treasury 
Department. 

Mr. Hurley. Just exceptional cases. 

Mr. Lehlbach. I should like to inquire whether anybody from 
the War Risk Insurance Bureau is present, before we oroceed. 

Mr. Lazaro. Would it not be a good idea to have the representa¬ 
tives of the other bureaus follow these gentlemen? 

Mr. Lehlbach. Yes, sir. I think we can go ahead. The War 
Risk Insurance Bureau had ample notice, a week’s notice, of this 
hearing, and the scope of the hearing, its purpose, and so forth. 

Mr. Edmonds. Mr. Hurley, you have no objection to putting this 
memorandum in the record as a part of your statement? 

Mr. Hurley. No, sir. 

Mr. Leiilbach. As a matter of fact, this is a memorandum by Mr. 
Ogden, as I understand it? 

Mr. Hurley. Yes, sir; that memorandum is to the chairman. 

(The memorandum referred to by the chairman follows:) 

f memorandum for the chairman. 

United States Shipping Board, 

Emergency Fleet Corporation, 

Division of Insurance, 
Washington, D. C., July 7, 1919. 

On September 28, 1917, the Advisory Insurance Committee of the United 
States Shipping Board was created by resolution of the board. The duties of 
this committee were to be as follows: 

First. To advise the United States Shipping Board of all questions of marine, 
war-risk, and protection and indemnity insurance. 

Second. To superintend the operation of an insurance fund to be created by 
the United States Shipping Board Emergency Fleet Corporation. 

Third. To consider the terms of all charters, purchases or requisitions, and 
to make recommendations as to the insurance provisions or precautions as 
deemed advisable including general recommendations as to loading and inspec¬ 
tion. 

The insurance fund was created by the same resolution and was for marine 
and war-risk insurance. This fund was to be created with premiums and 
debited with losses and expenses. 

The principal risks assumed by the insurance fund have been the following: 

1. War and marine risks on all vessels owned by the Shipping Board ana 
the Emergency Fleet Corporation and on vessels chartered on a barbrboard basis 
unless assigned to the Army or Navy or rechartered. 

2. War-risk insurance on all vessels under time form of requisition charter 
and on Norwegian, Swedish, Japanese, and other vessels of foreign registry 
chartered to the Shipping Board or to the Emergency Fleet Corporation on 
terms requiring the charters to assume the risk. 

3. Marine and war risks on freight on all vessels operated by or for account 
of the Emergency Fleet Corporation where the freight is payable at destination. 


6 


MARINE INSURANCE. 


4. Protection and indemnity insurance on all vessels which are not covered 
for these risks in any other way. 

In January, 1918, the Shipping Board appropriated the sum of $10,000,000 
to serve as a working capital for the insurance fund, but about one year later 
this appropriation was withdrawn as it had not been necessary to use the funds 
and sufficient reserve had been accumulated. 

The Advisory Insurance Committee administered this fund in the same gen¬ 
eral way that marine insurance companies conduct their business. Each 
steamer was entered in the fund at an appropriate value and at rates in ac¬ 
cordance with the anticipated service. At first, except for the seized German 
liners not in the service of the war, and the Navy Department, the committee 
was engaged in covering only war risks on the requisitioned American steamers 
of 2,500 gross tons or over. In January, 1918, the steamers constructed by the 
Emergency Fleet Corporation began to operate and the fund assumed both 
marine and war risks on them from the date of delivery by the builders. Each 
vessel was entered for marine insurance for one year, and for war risks at the 
beginning of each month or trans-Atlantic voyage at a rate of premium in 
accordance with her proposed service. At the end of each month, reports were 
submitted to the comptroller showing the premiums entered, so that he could 
charge the premiums against the vessels. These charges were carried as a 
part of the operating exepenses for each voyage. 

During the war a large number of foreign vessels were chartered by ,the 
Shipping Board in addition to the requisitioned Dutch tonnage. The insurance 
committee entered each in the fund for the risks assumed by the Shipping 
Board. Practically all this protection was against war risks, as in most cases 
the owners provided for the marine insurance. The premiums charged were 
reported to the comptroller. Some of the charterers’ risks, such as the ves¬ 
sel’s liability to the cargo, were not covered by the marine and war insurance, 
so a separate fund, entitled “the charterers’ risk fund,” was started, and these 
steamers were entered in it. The rates charged for this protection were con¬ 
siderably lower than market quotations. The condition of this charterers’ 
risk fund on June 30, 1919, was as follows: 


Premiums entered__/_$87, 601 

Unearned premiums_'__ $2, 685 

Losses settled or authorized_16. 919 

Known claims pending_ 49, 034 

Unreported losses_15, 000 

-- 83, 638 


Estimated margin _ 3, 963 

The marine rates used in the insurance fund were based on market quota¬ 
tions less about 25 or 30 per cent. This deduction was made as the fund did 
not have the usual heavy overhead expenses such as taxes, brokers’ commis¬ 
sions, inspections, and clerk hire. In fixing the rates of premiums the idea was 
not to show a profit, but to give the Shipping Board adequate and sound pro¬ 
tection at the lowest cost. 

From November, 1917, to September, 1918, the annual marine rate for steel 
steamers was 3f per cent, with a slightly lower rate for the seized German 
liners. The records of the marine insurance companies covering a long period 
of years enabled these rates to be fixed with fair accuracy, but owing to some 
very heavy losses in the early summer of 1918, it was necessary to raise rates. 
On September 1, 1918, the annual marine rate for steel steamers was advanced 
to per cent and the insured values of the steamers when less than 10 years 
old was increased from $175 per dead-weiglit to $200 per dead-weight ton. The 
income of the insurance fund was increased and by the end of 1918 the deficit 
had been made up, although the rates charged were below those quoted by 
marine insurance companies. As an indication of the amount of marine in¬ 
surance written from July, 1917, to December 31, 1918, the following statement 
is given: 

Premiums entered -$21, 006,100 

Unearned premiums_$8, 436, 449 

Estimated losses-ll’ 755^ 155 

-- 20,191, 604 


Estimated margin_ 

Or 3.8 per cent of the premiums entered. 


814, 496 
















MARINE INSURANCE. 


i 

The wooden and composite steamers were put in service in the summer of 
1918, and on September 1 the annual marine rate was fixed at 61 per cent. This 
was found to be inadequate, and in November it was increased to 71 per cent. 
The insured value of these vessels was fixed at $150 per dead-weight ton. 

On February 1, 1919, the rate for steel steamers was reduced to 31 per cent, 
but the rate for wooden and composite steamers was raised to 71 per cent. The 
insured values of the vessels remained the same. It might be well to note that 
the insured values do not necessarily correspond with the commercial values, 
but are based on arbitrary scales adopted merely for insurance purposes and 
varying with the age and type of the steamer. 

To show how the insurance fund is running on the present rates, figures for 
March and May, 1919, are quoted: 

March, 1919: 

Premiums entered___$4, 617, 865 

Unearned premiums_$4, 049, 970 

Estimated losses_ 442, 500 

- 4, 492, 470 


Estimated margin 


125, 395 


May, 1919: 

Premiums entered___ 

Unearned premiums_$3, 381, 067 

Estimated losses_ 129, 500 


3, 814,121 


3, 510, 567 


Estimated margin_ 303, 554 

The rates used for war-risk insurance have been the same as those quoted by 
the Bureau of War Risk Insurance. While the figures shown below for the 
period from July, 1917, to December 31, 1918, indicate a large margin of safety, 
it must be remembered that there was a very large value continually at risk 
in the war zone and a concerted submarine attack on American vessels would 
have very quickly and seriously affected the reserve which had been built up. 
There was no way from past experiences to form an idea of the losses which 
might be expected. As a whole the vessels protected by the fund have been very 
fortunate in escaping submarines and mines: 

Premiums entered_$40, 774, 718 

Unearned premiums_ $698, 906 

Estimated losses_ 12, 935,100 

- 13, 629, 006 


Estimated margin___ 27,145,712 

The rates in force were as follows: 

July 1 to Nov. 15, 1917, United States to Europe- 

Nov. 16, 1917, to Mar. 14, 191S, United States to Europe 
Mar. 15 to Nov. 11, 1918: 

United States to England and France- 

United States to Mediterranean ports-- 

Nov. 11 to 18, 1918, United States to Europe- 

Nov. 19 to July 1, 1919, United States to Europe- 

Except through waters known to be heavily mined. 

Since the armistice was signed the fund has sustained two total losses and 
one serious partial loss. On April 15, 1919, all war-risk insurance was discon¬ 
tinued on vessels in the Pacific Ocean and on May 1, 1919, the same action was 
taken on all vessels trading on the east coasts of North, Central, and South 
America. War-risk insurance was continued on nil vessels trading trans-Atlan¬ 
tic. The rates have been very low since November 11, 1918, as only the risk of 
mines had to be covered. 


Per cent. 

__ 5 

__ 4 

2 

__ 3 

-- * 

—- i 




























8 


MARINE INSURANCE. 


The following is a statement of the war-risk premiums for March and May, 


1919: 

March, 1919: 

Premiums entered_ $581, 881 

Unearned premiums_ $4S6,534 

Estimated losses_ 1, 494, 600 

- 1, 981,134 


Estimated deficit_ 1, 399, 253 


May, 1919: 

Premiums entered_ 350, 616 

Unearned premiums_$234, 705 

Estimated losses_ 367, 500 

- 602,205 


Estimated deficit_ 251, 589 

In October, 1918, the Division of Insurance was created to take over all of 
the work of the Advisory Insurance Committee. It was also authorized to act 
with the approval of the admiralty counsel in making salvage and wrecking 
contracts and in settling claims with parties other than the Shipping Board or 
the Emergency Fleet Corporation, provided that the amount involved did not 
exceed a fixed sum. 

The insurance fund has been in operation since July, 1917, and during this 
time it has protected the Shipping Board and Emergency Fleet Corporation 
in such a way that claims have been distributed over the whole fleet and no 
heavy loss because of a marine accident or damage from a war peril has fallen 
on any one vessel. The marine premiums have covered the estimated losses 
with a slight margin to protect against unreported accidents and losses which 
may exceed the estimates. The war-risk premiums have exceeded the losses 
to a considerable extent, but the premiums which have been paid by the ves¬ 
sels have been the same as were paid to the Bureau of War Risk Insurance 
by privately owned steamers. 

B. Iv. Ogden, 

Acting Director of Insurance. 

Mr. Kincheloe. Mr. Hurley, was all the insurance of the Gov¬ 
ernment-owned and Government-operated vessels carried by the 
Government ? 

Mr. Hurley. Yes, sir. 

Mr. Kincheloe. That is still in vogue now? 

Mr. Hurley. Yes, sir. 

Mr. Kincheloe. So far as I am concerned, I should like to have 
your opinion as to whether you think that this same kind of insur¬ 
ance ought to prevail in peace times or whether there should be a 
change, and, if so, what change would you suggest? 

Mr. Hurley. My thought, Mr. Congressman, is that it should 
continue until such time as we sell off the ships. For example, if 
we sell a ship for $1,000,000 and we take a mortgage for $750,000. and 
the man who purchases it pays 25 per cent down, my thought is that 
the 25 per cent he pays should go to a private insurance company 
and the other 75 per cent should be held by the Government—that 
is, insured by the Government at the market rate that the purchaser 
would have to pay and the difference between the market rate and 
the rate that we write the insurance for, 1 per cent or 2 per cent, 
should go into a fund in the interest of shipping generallv and to 
meet conditions that may develop from time to time. 

As soon as the purchaser makes an additional payment, say, 
$100,000 the second year, the Government stops insuring and that 
goes into the private insurance company. If we sold all the ships 
















MARINE INSURANCE. 


9 


and asked the marine-insurance companies to underwrite all the 
insurance, they are not large enough, but in this way they would 
gradually develop their insurance business so at the end of the time 
when the Government went out of the business of owning ships or 
holding the mortgages on ships they would have absorbed all the 
insurance and we would have private insurance companies handling 
the marine insurance, and the Government would be out of the 
ownership of the ships and also out of the insurance business. 

Mr. Kincheloe. Your idea is that if we sell all of these vessels, 
then, when the mortgages are liquidated the Government should go 
out of the business entirely ? 

Mr. Hurley. Yes, sir. 

Mr. Kincheloe. Just another question. Do the foreign insurance 
companies as a rule write the insurance cheaper than the domestic 
companies ? 

Mr. Hurley. It varies. We have brokers who take our insurance. 
If an individual ship operator w r ants to insure his ship, he goes to a 
broker, and that broker will take it to an American marine-insurance 
company or to a foreign insurance company, and he will sell it and 
place it where he can get the best rate. Sometimes the American 
marine insurance company will load up. They take into considera¬ 
tion the risk, the kind of insurance that the broker offers. If they 
have too much, they will allow the broker to go to a foreign marine 
insurance company. If they like the insurance the broker presents 
they will take it. Of course a large percentage of our marine in¬ 
surance is underwritten by foreigners. Germany was a very heavy 
underwriter for years, and Great Britain is, of course, the leader. 

Mr. Kincheloe. Was there any prohibition on foreign insurance 
companies writing insurance on our ships during the war ? 

Mr. Hurley. No, sir; but the rate was so high that we could not 
give it to them. They would not take it. 

Mr. Kincheloe. As a matter of fact, there was none written ? 

Mr. Hurley. No, sir. We took it from them. We made $27,- 
000,000 on our own premiums. We could not afford to give that to 
the insurance companies. That is the reason. During the last 18 
months we have been 8 per cent under the market rate. 

Mr. Kincheloe. What has or will become of the $27,000,000? 

Mr. Hurley. We put it "right back into the fund. It was just 
switching from one account to another. We took that out so that it 
would not interfere with the regular work. 

Mr. Edmonds. That is a revolving fund? 

Mr. Hurley. Yes, sir. 

Mr. Lehlbach. What was the difference in the rate charged by 
private insurance companies and the rate charged by the division of 
insurance ? 

Mr. Hurley. I think all of that information is contained in the 
memornrum. 

Mr. Lehlbach. In this statement? 

Mr. Hurley. Yes.^sir. 

Mr. Ogden. I do not think that is shown in the statement. 

Mr. Lehlbach. You are doing business at a cheaper rate? 

Mr. Ogden. Twenty-five or 30 per cent cheaper. 

Mr. Lehlbach. And at the same time you show a very large 
profit—about $25,000,000? 


10 


MARINE INSURANCE. 


Mr. Ogden. They have heavy expenses which do not appear in the 
way we operate. 

Mr. Lehlbach. I suppose you do not figure overhead? 

Mr. Ogden. No, sir. 

Mr. Hurley. We had an advantage in that way. 

Mr. Ogden. Our overhead practically amount to salaries and that 
is very small. 

Mr. Edmonds. Judge Alexander has just informed me that the 
British stopped their insurance companies some time during the 
war from insuring anything but their own ships. 

Mr. Hurley. He may be right. I have not followed that in de¬ 
tail. 

Mr. Edmonds. Is not the question of insurance one of vital im¬ 
portance in the building up of a foreign trade in this way: The in¬ 
surer actually knows the cargo and the destination of the cargo, and 
that information could be given to other bodies, and it would be a 
natural result if he insured in a German or an English company that 
certain other parties would have the information as to what kind of 
cargoes were shipped from certain parts of the world to certain other 
parts of the world; in other words, they would have a knowledge of 
what your ships were doing, which would be useful to them in build¬ 
ing up their trade. Do you not think that that shows that we ought, 
if possible, to have all of the insurance done in this country ? 

Mr. Hurley. You are absolutely right. If we are going into the 
merchant-marine business, which we are in and are going to continue, 
we must have all branches of the service arranged for and carried 
out in America, the American bureau registering of ships, insurance, 
loadlines, and all those things must be American. 

Mr. Edmonds. That brings up another question which is, of course, 
connected with the insurance question. The American Bureau and 
Lloyds—have you had any experience that you would want to give to 
the committee in connection with those bureaus ? 

Mr. Hurley. I appointed a committee with Mr. Franklin as chair¬ 
man and some of the best men in this country to make a study of 
that question. My experience with Lloyds and the American Bureau 
has been in connection with the construction of ships during the 
war. Of course, we forced them to double and treble their business. 
We built many vessels; they did not have inspectors and we forced 
them to get men in to inspect. In some cases the American Bureau 
did not have a good man and we did not get the service. The same 
thing applies to Lloyds. There was an extreme shortage of in¬ 
spectors. We had to make the best of it. It was not a normal con¬ 
dition. Things did not go as we should have liked, but under the 
conditions we had to do the very best we could. There was a great 
shortage. There is great danger in not having proper inspection. 
The American Bureau of Shipping went into it finally. As to 
Lloyds, I have never had any personal experience where tloyds had 
not done very fair work. I have heard a lot of rumors, but never 
personally had anything presented where they were doing something 
that they should not do. I mean on the passing of a ship. 

Mr. Edmonds. The Shipping Board had nothing to do with the 
formation of the American Bureau ? 

Mr. Hurley. No. 


MARINE INSURANCE. 


11 


Mr. Edmonds. That is a separate concern supported by its fees? 

Mr. Hurley. We helped to develop and recognize them. We tried 
to give them from 65 to TO per cent of all the inspections and we 
gave Lloyds 25 to 30 per cent, with the thought in mind of helping to 
develop the American merchant marine, and realizing that we could 
not give them all of the inspections, because it was too new and the 
conditions were abnormal. 

Mr. Edmonds. Are they doing good work now ? 

Mr. Hurley. Yes; they are improving all the time. We are try¬ 
ing to eliminate the inspections. We have had too many inspections. 
We are trying to leave the whole thing to the American Bureau, just 
as you would do under peace conditions, making them responsible 
for the ships. 

Mr. Edmonds. The time will come when the American Bureau can 
handle all of this work? 

Mr. Hurley. I think so; yes, sir. One advantage that the Lloyds 
have, if you have an accident in a foreign country, Egypt or in India 
or in South America, they have an agent there to pass upon the ship 
and the underwriters want quick action. The American Bureau, of 
course, has not any foreign branch. 

Mr. Edmonds. They expect to have ? 

Mr. Hurley. Yes, sir; we are encouraging that. We are anxious to 
have the American bureau understand that they must expand in 
order to keep abreast of the times. 

Mr. Edmonds. Has the Government given any assistance at all? 

Mr. Hurley. They do not need any assistance. 

Mr. Edmonds. They are financially all right? 

Mr. Hurley. Yes, sir. If they need assistance they should have it. 
They never sent anybody to me saying they needed money. They 
have some very good men. Admiral Taylor did some very good work. 

Mr. Edmonds. If they establish other agencies they would need a 
great deal more financial capital than they have at the present time ? 

Mr. Hurley. Yes, sir. That is a very important situation, and I 
hope that you will be able to go into that later. 

Mr. Edmonds. We will have them before us, I suppose, and we will 
learn something about what they are doing. 

Mr. Hurley. Yes, sir. I realize the fact that the inspection by the 
agencies is a very important thing in building up shipping. I also 
realize that it is "not a good thing to have the foreign people doing 
that for you. 

Mr. Edmonds. That is right. 

Mr. Kincheloe. Did the Government insure any other ships except 
the Government-owned and Government-operated ships ? 

Mr. Hurley. We requisitioned a great many ships from private 
owners that we insured. We insured all the ships owned by the Gov¬ 
ernment and any ship that we requisitioned and operated. 

Mr. Kincheloe. You did not write insurance on any others? 

Mr. Hurley. No, sir. 

Mr. Kinchloe. Just the Government owned and controlled? 

Mr. Hurley. Yes, sir. 

Mr. Chindblom. I presume, in the insurance of ships that you are 
selling and which you intend to have underwritten by private com- 


12 


MARINE INSURANCE. 


panies, that the purpose is to confine it, if possible, to the American 
bureau and American insurance companies? 

Mr. Hurley. We have not followed that very closely. We have 
sold few ships. We have not tried to place any restrictions on them 
at all. 

Mr. Chindblom. You leave that to the purchaser? 

Mr. Hurley. Yes, sir. We take it for granted that they will insure 
with aii American company. I have not really made that a part of 
the contract, there have been so few sold compared with the total 
number. 

Mr. Chindblom. There may be more hereafter? 

Mr. Hurley. Yes, sir. I recommended that to Congress and that 
is a part of our plan, not to have any insurance written outside. 

Mr. Alexander. As a matter of fact, I received a letter the other 
clay from Prof. S. S. Huebner, of the University of Pennsylvania, 
with reference to this investigation, and in that connection he sug¬ 
gested that he was writing a brochure or some thesis for the Ship¬ 
ping Board on this question of marine insurance. When will that be 
available ? 

Mr. Hurley. I expected all of those things in a month ago. We 
have had three or four men working on that. I will try to let you 
know when it will be here. 

Mr. Alexander. I called the chairman’s attention to it because I 
do not think that you could have selected a better man in the United 
States for that purpose than Prof. Huebner. He-worked with me 
for two years, and I think that you made a very happy selection, and 
I am very sure that the document or treatise, whatever it may be, 
will be of great value to this committee in its investigation. 

Mr. Hurley. I will call him on the long-distance telephone and let 
your secretary know when it will be down. 

Mr. Edmonds. You employed Prof. Huebner? 

Mr. Hurley. Yes, sir; we had him and Prof. Emory Johnson and 
several men who have had experience in other lines of insurance to 
get all of this data before us for your benefit. 

Mr. Edmonds. Will his employment be of such a nature that he 
can come before the committee and work with the committee ? 

Mr. Hurley. I will ask him. Most of them do not like to take 
temporary employment. 

Mr. Edmonds. He writes me that he is willing to come down. Of 
course, he is looking for employment by the committee. We do not 
want to employ him for the same purpose. 

Mr: Hurley. Would you prefer to employ him yourself? 

Mr. Alexander. My point was that the information he is gather¬ 
ing, and for which you are paying him, would be available to this 
committee and that it would not be necessary for both to employ him. 

Mr. Hurley. Yes, sir; that is right. 

Mr. Edmonds. As long as he is in your employ he would be avail¬ 
able to the committee from time to time ? 

Mr. Hurley. There is no question about that. We will have him 
down here. 

Mr. Lehlbach. We will now hear Mr. Ogden. 


MARINE INSURANCE. 


13 


STATEMENT OF MR. BRYAN K. OGDEN, ACTING DIRECTOR OF 

INSURANCE. 

Mr. Lehlbach. Proceed, Mr. Ogden. 

Mr. Ogden. How do you want me to start? 

Mr. Lehlbach. We want you to outline just wliat the Shipping 
Board has done. 

Mr. Edmonds. Can not we have an outline of the department as 
you have it? 

Mr. Lehlbach. Of the Division of Insurance? 

Mr. Edmonds. Your officers, etc. 

Mr. Ogden. And the work as we are doing it now ? 

Mr. Lehlbach. The organization, the business it has done and the 
manner in which it has handled it. 

Mr. Ogden. As it is outlined in the memorandum you have there, 
the Division of Insurance was formed last October, superseding the 
advisory insurance committee of the Shipping Board. 

Mr. Lehlbach. Who composed the advisory committee? 

Mr. Ogden. Mr. Hendon Chubb, chairman; Mr. William N. Davey, 
and Mr. William R. Hedge. 

Mr. Lehlbach. Who were these gentlemen; what were their occu¬ 
pations ? 

Mr. Ogden. Mr. Chubb is the head of Chubb & Son, New York, one 
of the largest commercial underwriting firms that we have. They 
represent not only their own company and other American com¬ 
panies but also a number of English companies. Mr. Davey is one 
of the directors of Johnson & Higgins, who are large insurance 
brokers and adjusters. He is ah expert on losses; and Mr. William 
R. Hedge is the president of the Boston Insurance Co. and one or two 
companies that are very closely connected with that concern. His 
office is in Boston. 

Mr. Chindblom. Where is the firm of Johnson & Higgins located? 

Mr. Ogden. No. 49 Wall Street, New York, and Mr. Chubb’s of¬ 
fice is 5 South Williams Street, New York. 

Mr. Edmonds. Do those gentlemen comprise the present com¬ 
mittee ? 

Mr. Ogden. No; they have all resigned. When the Division of 
Insurance was formed to take the place of the committee Mr. Chubb 
was appointed director; Mr. Davey had resigned at that time, and 
there was a gentleman named Herbert S. Aggert, another insurance 
broker in New York, acting as assistant director of the Division of 
Insurance. On the 1st of February those men resigned and the board 
appointed me as acting director. 

Mr. Lehlbach. The first of February of this year? 

Mr. Ogden. Yes; 1919. I had been with the committee since No¬ 
vember 12, 1917, and had done all of the clerical work and organi¬ 
zation work; the others had merely outlined the policies which they 
wanted carried out, and from November, 1917, we began the insur¬ 
ance fund. 

Mr. Lehlbach. When was the Division of Insurance organized ? 

Mr. Ogden. October 9, 1918. It was created by a resolution of the 
Shipping Board. 


14 


MARINE INSURANCE. 


Mr. Lehlbach. What is its present organization—the number of 
officers, employees, salaries, etc.? 

Mr. Ogden. You want the salaries? 

Mr. Lehlbach. Yes. 

Mr. Ogden. I am the acting director at $4,500 a year, and a man 
named A. W. Kanouth has charge of one particular branch of insur¬ 
ance; his title is chief of the P. and I. section; that stands for pro¬ 
tection and indemnity, which covers the legal liability of the steam¬ 
ers, such as injury to crews and cargo claims; damage which they 
may do to docks, submarine cables, and matters of that kind. 

Mr. Lehlbach. In other words, injuries flowing from the ship 
rather than sustained by the ship? 

Mr. Ogden. Yes. 

Mr. Chindblom. What is his compensation? 

Mr. Ogden. $3,000. Then we have 10 clerks in the office whose 
salaries range from, I think it is, $2,400 to $1,100; that does not 
include an office girl who gets a salary of $45 a month. 

Mr. Lehlbach. Is this personnel exclusively in the Division of 
Insurance or are they also employed in other divisions of the Ship¬ 
ping Board or Fleet Corporation? 

Mr. Ogden. They are exclusively in the insurance division and 
they are apart from the Shipping Board. 

Mr. Lehlbach. Where is your office? 

Mr. Ogden. We are at present located at 717 Thirteenth Street, 
Annex 4, of the Shipping Board. Do you want an outline of the 
course of procedure of the division? 

Mr. Lehlbach. I think you had better go back and give us an 
outline of the activities of the advisory insurance committee which 
preceded this division. 

Mr. Ogden. From their appointment last September until No¬ 
vember, when I came down here, I am not very familiar with what 
they did, but I believe their principal duties were consultations 
with the Law Division and other divisions of the Shipping Board 
in connection with the preparation of charters, principally the 
requisition charters under which all American vessels of 2,500 tons 
and over were requisitioned on the 15th of October. 

Mr. Lehlbach. Was it the policy of the Shipping Board from 
the very beginning to obtain control of ships and to carry their 
own insurance? 

Mr. Ogden. I do not quite understand the question. 

Mr. Lehlbach. The Shipping Board iioav carries its own insur¬ 
ance on all the ships that it operates? 

Mr. Ogden. Yes. 

Mr. Lehlbach. Was that the policy from its inception? 

Mr. Ogden. It was; yes. 

Mr. Lehlbach. It did have ships under its control before the 
war, did it not? 

Mr. Ogden. I believe not; I am not sure of that, but I think not. 
As you probably know, the Government can not pay insurance 
premiums to insurance companies. It is the policy of the Govern¬ 
ment not to place insurance with commercial companies. 

Mr. Lehlbach. And did you construe, or did the Shipping Board 
construe, that that inhibition precluded its paying premiums to the 
War Risk Insurance Bureau? 


MARINE INSURANCE. 


15 


Mr. Ogden. I believe it did. I think the theory of the committee 
was that without overhead expense the Shipping Board could do 
its own insuring very much cheaper and could also keep a certain 
control and restriction on the operation of ships to more advantage 
than commercial companies could, especially during the war, when 
we could not tell where ships were going, because the movement of 
ships was very confidential at that time. 

Mr. Edmonds. You virtually had a department that was doing its 
own insuring just like large manufacturing establishments have? 

Mr. Ogden. Yes. 

Mr. Edmonds. And in doing that you had to form a department 
to carry out that policy and to find out whether that was the eco¬ 
nomical thing for you to do? 

Mr. Ogden. Yes. 

Mr. Lehlbach. You said that in the first instance the advisory 
insurance committee acted rather as a consulting body. Did it com¬ 
mence to write insurance itself or did it handle the insurance and 
figure out what the premiums would be, etc. ? 

Mr. Ogden. Yes; beginning in November, 1917; and those rates 
were based very largely on the market rates less approximately 25 
or 30 per cent. 

Mr. Lehlbach. How did it handle this business—that is, was it 
all handled through the advisory committee of three or did it use 
the general organization and clerical force of the Shipping Board, 
or did it organize its own department? 

Mr. Ogden. It organized and built up its own office. For some 
time I did all the work that there was to be done; then I got an 
assistant and we gradually built it up. 

Mr. Lehlbach. And was that the organization which was taken 
over by the division of insurance in October? 

Mr. Ogden. Yes; we made no change at all in the running of the 
office. 

Mr. Lehlbach. So it was a continuing organization? 

Mr. Ogden. Yes; we continued the same policies as before. That 
was done really to give more authority to the committee, because it 
was found that vessels were getting into trouble and it was very 
necessary to act promptly. If a vessel is ashore you have to get her 
off as soon as possible, and it is a rather unwieldy organization to 
act very promptly through the Shipping Board, when we must get 
results quickly. So the board gave the committee authority to go 
ahead to make contracts and salve the vessels, thereby saving time 
and trouble. 

Mr. Lehlbach. Will you give us an outline or resume of the 
actual workings of your division—how it carries on its work? 

Mr. Ogden. I will give it at the present time and not the way we 
tried to work it in the past, because it was very hard to get informa¬ 
tion in the past, so the present is a good illustration. 

Mr. Lehlbach. There has been no change in policy from the time 
of the advisory insurance committee to the present, and the way it 
works now is the result of the gradual development toward which 
it was aiming all the time? 

Mr. Ogden. Yes; and working with the Division of Operations, 
cooperating with them. We receive information from the Division 
of Operations as to the movement of steamers; also as to when they 


16 


MARINE INSURANCE. 


are chartered to the Shipping Board and come at our risk, and we 
enter those in the insurance fund from that time at the rates which 
are in force and for the voyages which they are going to make. 

Mr. Lehlbach. Who fixes the rates? 

Mr. Ogden. Mr. Chubb fixed most of the rates while he was still 
here. 

Mr. Lehlbach. Do those rates remain without change at present s 

Mr. Ogden. Practically so. 

Mr. Edmonds. They have been reduced since the war, have they 
not ? 

Mr. Ogden. Let me make this clear. There were two kinds of in¬ 
surance, one a marine risk and one a war risk; the insurances have 
no connection and the rates have no connection; there are two dif¬ 
ferent kinds and two separate rates. 

Mr. Edmonds. Since the war you have dropped the war risk and 
are now simply running the marine risk ? 

Mr. Ogden. 'Yes; except as to the trans-Atlantic service; we have 
kept the war risk on the trans-Atlantic service but at low rates. 

Mr. Lehlbach. On account of mine fields and other obstructions? 

Mr. Ogden. Yes, sir. 

Mr. Lehlbach. Were both classes of insurance handled by your 
division ? 

Mr. Ogden. Yes. 

Mr. Lehlbach. With the same force? 

Mr. Ogden. Yes. 

Mr. Lehlbach. How were these rates arrived at by Mr. Chubb? 

Mr. Ogden. He took the market rates. He is an underwriter of 
long experience. He took the market rates and reduced them from 
25 to 30 per cent, depending somewhat on the vessel, and we adopted 
those rates and we have been using them right along. 

Mr. Lehlbach. How were the market rates ascertained? 

Mr. Ogden. Well, if we wanted those rates we would communi¬ 
cate with New York and get a quotation through brokers. 

Mr. Lehlbach. Did they not, to some degree, vary as competition 
between companies exists, or is there a tacit agreement as to rates be¬ 
tween competing companies? 

Mr. Ogden. The market is very steady; the companies will make 
some difference but not very much. However, the kind of boat or the 
kind of steamer will make some difference and the companies’ opin¬ 
ion of that steamer will often make a difference. 

Mr. Chindblom. I would like to ask whether the gentleman knows 
how Mr. Chubb arrived at his rates and on what basis he made this 
reduction ? Did he make a horizontal cut in the rates ? 

Mr. Ogden. He made a horizontal cut in the rates, Mr. Chubb is 
the leading underwriter in New York, and from his experience it 
follows that any rate he makes is just about the market rate. 

Mr. Chindblom. I have not doubt about that, but I wondered how 
he made his reduction. 

Mr. Ogden. He took the market rate and reduced it. 

Mr. Chindblom. But you do not know on what basis? 

Mr. Ogden. The reduction was on the basis of 25 or 30 per cent, 
not necessarily arbitrarily, but that was approximately the reduc¬ 
tion. 


MARINE INSURANCE. 


17 


Mr. Edmonds. Yoiu* rates and the war-risk rates were about the 
same? 

Mr. Ogden. On the war risk they were exactly the same. 

Mr. Edmonds. Did Mr. Chubb fix both rates? 

Mr. Ogden. Mr. Chubb was one of the directors of the Bureau of 
War Risk Insurance. 

Mr. Lehlbach. At the same time he was on the advisory insurance 
committee of the Shipping Board? 

Mr. Ogden. Yes; so he worked very closely with the Bureau of 
War Risk Insurance. 

Mr. Edmonds. He did not get a salary from both ends, did he ? 

Mr. Ogden. He got $1 a year. 

Mr. Lehlbach. The War Risk Insurance Bureau was originally 
created for the purpose of writing just this kind of insurance, and 
if Mr. Chubb was interested in both the Shipping Board and the 
War Risk Bureau they were cooperating. 

Mr. Ogden. Yes, sir. 

Mr. Lehlbach. That being so, why would it not have beeu eco¬ 
nomical, and the reasonable and the obvious thing to do, to place 
your war-risk insurance with the bureau which was organized for 
that purpose instead of building up an organization to handle this 
business ? 

Mr. Ogden. I had not thought of that question, and it rather hard 
to answer offhand. 

Mr. Lehlbach. Was it not a duplicate of Government activities? 

Mr. Ogden. Well, in one w T ay, yes; and not in another way. At 
the time we began work it would have been practically impossible 
for the Bureau of War Risk Insurance to write insurance for the 
Shipping Board, because they were tied down very strictly by the 
law. 

Mr. Lehlbach. Who was tied down? 

Mr. Ogden. The bureau. They could only do certain things, 
whereas we automatically assumed all the risks of the Shipping 
Board. 

Mr. Lehlbach. You mean the War Risk Bureau was supposed to 
abide by the statute and you could do as you pleased ? 

Mr. Ogden. Well, that is a little bit broad; but we were not cre¬ 
ated by a statute; we were created by the board to take- 

Mr. Lehlbach (interposing). That is even less authority. 

Mr. Ogden (continuing). To take care of the board’s insurance. 

Mr. Chindblom. The Shipping Board was created by statute ? 

Mr. Ogden. Yes. 

Mr. Alexander. May I ask a question ? 

Mr. Lehlbach. Yes. 

Mr. Alexander. I introduced the bill creating the War-Risk In¬ 
surance Bureau, and I am curious to know what limitation there 
was in that act which prevented their handling this insurance. They 
absolutely had the right to insure all vessels under the American flag 
against war risks, and I can not understand why they never insured 
all of these ships. I did not suppose you had developed a bureau in 
the Shipping Board to do this work when that bureau was created 
and equipped for that work. 

160770—20 - 2 



18 


MARINE INSURANCE. 


Mr. Lehlbach. I must say that it was a surprise to me to learn 
that this morning. 

Mr. Alexander. I do not see any reason for it, but there may be 
one. 

Mr. Ogden. There is one reason that I think I could give, and I 
was going to explain it. At the time we began work it was practi¬ 
cally impossible, owing to the confusion in the Shipping Board, to 
get information about the movement of steamers. We often wrote 
insurance up six months after it attached and that was necessary. 

Mr. Alexander. After? 

Mr. Ogden. Yes; after. If the insurance attached in August we 
may not have put it on our books until the first of the year. 

Mr. Alexander. How would it attach—simply as a matter of 
bookkeeping ? 

Mr. Ogden. It was simply a matter of bookkeeping. No money 
changed hands for premiums, whereas the Bureau of War Risk 
Insurance required a certified check before they would issue policies, 
and they required full particulars of the voyage on which the vessel 
was going to sail, and it was impossible to give them that in the 
confusion that existed at that time. 

Mr. Lehlbach. But the War Risk Insurance Bureau was not an 
outsider to whom such confidential information ought not to be 
given because they were created for the very purpose of receiving 
such information and then writing the policies. 

Mr. Ogden. It was not a question of confidential information, but 
it was a question of getting any information at all. The organiza¬ 
tion of the Shipping Board was naturally at that time very loose, 
because we had had a terrific amount of work thrown on us without 
any organization, and until an organization was built up information 
as to voyages being made by various steamers could not be obtained. 

Mr. Chindblom. As a matter of fact, was any attempt made to 
get the Bureau of War Risk Insurance to do business in the same 
way you say you are doing it? For instance, did you inquire 
whether they would follow the same course you w T ere pursuing in 
regard to carrying a risk for half a year or more before it got on 
the books, in the way you stated a moment ago? Was any consulta¬ 
tion held with the Bureau of War Risk Insurance as to whether 
they would conduct business in that way as a matter of emergency? 

Mr. Ogden. I never heard of any such thing. 

Mr. Chindblom. They you do not know whether they would have 
done it? 

Mr. Ogden. No. 

Mr. Edmonds. There was one great advantage, and that is that 
the Shipping Board in doing this themselves returned any profit in 
connection with it to their revolving fund, whereas if the War Risk 
Bureau had done it, it would have gone to their revolving fund. 

Mr. Lehlbach. I know; but that is where it belonged. 

Mr. Cholmeley-Jones. The Bureau of War Risk Insurance cov¬ 
ered the war hazard only and the war hazard means any other hazard 
but the normal marine hazard and the Shipping Board has reference 
to the other hazard. 

Mr. Lehlbach. No; they had the two and carried them both, the 
war-risk insurance as well as the marine insurance. 


MARINE INSURANCE. 


19 


Mr. Alexander. That is what I thought was a mistake. 

Mr. Lehlbach. When we entered the war it was the policy of the 
Shipping Board to control all American shipping, was it not? 

Mr. Ogden. Yes. 

Mr. Lehlbach. It did, as a matter of fact, operate and control 
every boat flying the American flag? 

Mr. Ogden. Yes. 

Mr. Lehlbach. And it wrote all the war-risk hazard on such 
boats ? 

Mr. Ogden. It did. 

Mr. Lehlbach. What on earth did the War Risk Insurance Bureau 
do so far as its marine insurance activities were concerned, for which 
it was originally created? 

Mr. Ogden. Their principal business changed to insuring cargoes, 
and that w T as the very great reason for their creation, to assist a 
merchant in exporting his goods to Europe. 

Mr. Lehlbach. You did not write insurance on cargoes? 

Mr. Ogden. We did not write insurance on cargoes at all. 

Mr. Alexander. The war-risk insurance act gave the War Risk 
Insurance Bureau the power to insure vessels, their cargoes, and 
freight moneys? 

Mr. Ogden. Yes. 

Mr. Alexander. And they did insure vessels, their cargoes, and 
their freight moneys? 

Mr. Ogden. Yes. 

Mr. Alexander. I was quite familiar with their activities up to 
the time Mr. De Lanoy left the bureau, and I understood that up 
to that time they wrote all the marine risk—that is, war risk—on all 
ships under the American flag. 

Mr. Ogden. They did not write on the vessels controlled by the 
Shipping Board. 

Mr. Alexander. You just stated, in answer to the chairman of 
the subcommittee, that the Shipping Board controlled all the ves¬ 
sels under the American flag. 

Mr. Ogden. Excuse me; that was a general statement. The Ship¬ 
ping Board requisitioned all steamers of 2,500 tons and over. 

Mr. Alexander. You put the War Risk Insurance Bureau out of 
business, did you noU 

Mr. Ogden. Except for the smaller boats and the insurance on the 
cargoes. 

Mr. Alexander. Well, I am surprised to hear that. I supposed 
they were writing all the war risk on vessels under the American 
flag, and the last report I had was to the effect that their net profit 
was from $10,000,000 to $15,000,000. 

Mr. Chindblom. Do you know whether any opinion was procured 
from the Attorney General or any legal officer of the Government as 
to whether the Shipping Board under the law would be authorized 
to engage in the insurance business? 

Mr. Ogden. No ; I do not. But the insurance business, as we con¬ 
ducted it, was entirely an internal organization—that is, the money 
never left the hands of the comptroller of the division of operations, 
and he, in fact, simply kept a ledger account of the insurance and 
the money remained in his hands to use as capital for running his 


20 


MARINE INSURANCE. 


steamers. So the insurance fund has really been a sinking fund to 
take care of losses. 

Mr. Kincheloe. Had the Bureau of War Risk Insurance con¬ 
ducted that instead of the insurance division of the Shipping Board 
and there had been any profit it would have reverted to the War 
Risk Insurance Bureau and not to the Shipping Board ? 

Mr. Ogden. It would; and, I think, that is the main question, that 
the money stayed with the Shipping Board and any profit remained 
w T ith the comptroller. Our premiums up to the first of this year— 
that is, covering about 15 months—amounted to $10,000,000; if we 
had had to pay that out to the Bureau of War Risk Insurance it 
would have made a very serious difference to the comptroller. 

Mr. Kincheloe. How do you mean it would have made a dif¬ 
ference ? 

Mr. Ogden. It would have depleted his funds, the funds which he 
could use, by that amount. 

Mr. Kincheloe. At the same time, did it not deplete the funds of 
the War Risk Insurance Bureau to that extent? 

Mr. Ogden. Well, yes; but I do not think that that made any 
particular difference. The Bureau of War Risk Insurance was not 
to run at a profit and that was not the object, but it was to assist the 
merchants and shipowners. 

Mr. Kincheloe. But one of its main functions was to insure ships, 
was it not? • 

Mr. Ogden. Yes; but when it was not necessary there was no rea¬ 
son why they should be called upon. The ships did not have to be 
insured by the bureau, and a great many of them were insured by 
private companies. 

Mr. Kincheloe. You mean the ships that were under Government 
control? 

Mr. Ogden. No; I mean the smaller ships. 

Mr. Kincheloe. Under 2,500 tons? 

Mr. Ogden. Yes; and before the Government requisitioned the 
ships. The bureau has been in existence ever since- 

Mr. Alexander (interposing). September 2, 1914, the law was 
passed. 

Mr. Ogden. They got running about December, 1914, soon after 
the war started. 

Mr. Kincheloe. That is, the Bureau of War Risk Insurance? 

Mr. Ogden. Yes. 

Mr. Kincheloe. And they performed all of these functions until 
your division took them away from them ? 

Mr. Ogden. Not necessarily; they did for the owners of the steam¬ 
ers who desired it, but otherwise the insurance was placed in the 
open market. 

Mr. Kincheloe. It was not made compulsory until after war was 
declared ? 

Mr. Ogden. It was never compulsory on them except for the in¬ 
surance of crews; that was necessary. 

Mr. Kincheloe. I understood Mr. Hurley to say that your division 
did insure every ship under Government control during the war. 

Mr. Ogden. That is, the Division of Insurance of the Shipping 
Board; we did; we assumed every risk for the Shipping Board. 

Mr. Kincheloe. That was compulsory, was it not? 


MARINE INSURANCE. 


21 


Mr. Ogden. Yes; with us; but we had nothing to do with the 
Bureau of War Risk Insurance, Treasury Department. The only 
insurance that I can recall that was compulsory with them was 
insurance on the lives of the crews. 

Mr. Kincheloe. Was any protest made by the Bureau of War Risk 
Insurance when you assumed entire jurisdiction of the insuring of 
ships ? 

Mr. Ogden. I never heard of any. 

Mr. Kincheloe. Who was the director at that time—Mr. DeLanoy ? 

Mr. Ogden. Yes. 

Mr. Edmonds. You did not insure the crews? 

Mr. Ogden. No ; we did not. 

Mr. Edmonds. You left that to the War Risk Insurance Bureau? 

Mr. Ogden. Yes. 

Mr. Edmonds. Did you take out a policy for every man employed, 
or just have a blanket policy? 

Mr. Ogden. No; our agents took out a policy for every ship. 

Mr. Edmonds. Your agents? 

Mr. Ogden. Well, the people managing the ships for us— that is, 
the Shipping Board—assigned vessels to certain concerns to run for 
them; that is, do the commercial end of the operating for them. 

Mr. Edmonds. When you chartered a ship to an agent was there 
a difference between chartering and allocating, or were they both the 
same thing ? 

Mr. Ogden. No; there is a difference. 

Mr. Edmonds. When you allocated a ship to an agent or when you 
chartered a ship to an agent, did you require the agent to take out 
insurance on the men? 

Mr. Ogden. Yes. For instance, as to the Norwegian ships, the 
owners took care of the marine insurance and We had nothing to 
do with that; the board assumed a part of the war-risk insurance, 
and for the balance of the war-risk insurance they paid a premium 
as charged by the Norwegian underwriters. We could not get the 
ships in any other way. 

Mr. Edmonds. Ships that you chartered ? 

Mr. Ogden. Yes, sir; and in most cases there was a continuance of 
the insurance. 

Mr. Edmonds. Including the crew ? 

Mr. Ogden. There is none of that. It stopped the first of the 
year. 

Mr. Edmonds. The crew insurance has stopped entirely? 

Mr. Ogden. Yes, sir; but we paid the premiums for the insurance. 

Mr. Edmonds. In other words, when you charter a ship for $25,000 
per month that includes all the insurance, except for the crew ? 

Mr. Ogden. Yes, sir. Those statements have to be taken in a 
general way, because there are exceptions to all of those statements. 

Mr. Edmonds. I presume there are. 

Mr. Ogden. There are many different kinds of insurance. 

Mr. Lelilbach. When you charter a ship to outsiders to operate 
under your supervision you require them to take out this insurance, 
but you let them place that insurance wherever they please? 

Mr. Ogden. Yes, sir. 

Mr. Lehlbach. Do you know whether, in fact, they place it with 
the War Risk Insurance Bureau or elsewhere? 


22 


MARINE INSURANCE. 


Mr. Ogden. There were very few cases such as that. When the 
Shipping Board chartered a ship they retained practically all of 
the insurance, for which they either included the rate in the charter 
hire or passed the premium on to the charterer, which was the same 
thing. 

Mr. Lehlbach. As you charter or allocate a ship you retain con¬ 
trol of the insurance ? 

Mr. Ogden. Yes, sir. 

Mr. Edmonds. Where did you get the $10,000,000 which you set 
aside for insurance? 

Mr. Ogden. The board appropriated that out of their funds for 
the purchase and construction of ships. 

Mr. Edmonds. Where did the profits go ? 

Mr. Ogden. It stayed right with the comptroller. 

Mr. Edmonds. Did it go back to the fund or was it carried as a 
separate account on your books ? 

Mr. Ogden. It was carried as a separate account. 

Mr. Edmonds, What did you do with the profits? 

Mr. Ogden. They went back to the Shipping Board, I suppose. 
The Division of Insurance has no interest, except to protect the 
losses. 

Mr. Edmonds. Has that money been turned back to be used for 
building ships? 

Mr. Ogden. The $10,000,000 was withdrawn about a year after it 
was appropriated, as we had never touched it; had not needed to. 

Mr. Edmonds. You were carrying that on your books, I presume, 
as a kind of special insurance for any risk in the future? 

Mr. Ogden. Yes, sir. It was a reserve. In the meantime the 
comptroller used that money for the operation of steamers. It was 
in his hands. 

Mr. Edmonds. It was simply a bookkeeping matter? 

Mr. Ogden. Yes, sir. 

Mr. Edmonds. In regard to your policies, when you chartered a 
ship to a man did you not put a policy on the ship ? 

Mr. Ogden. We have issued no policies at all. We simply enter 
the name of the ship in our books and the proper premium against 
it, but we have in our files a standard form of policy which covers 
that ship and all other ships. 

Mr. Edmonds. Will you put a copy of what you call your standard 
form of policy in the record ? 

Mr. Ogden. Yes, sir. 

Mr. Edmonds. The reason that I asked the question the shippers 
are complaining very much about the American insurance com¬ 
panies’ policies having what is known as the deviation clause? 

Mr. Ogden. Yes, sir. 

Mr. Edmonds. And they say that they can get foreign insurance 
without the deviation clause in it. Do you have that clause in your 
policies ? 

Mr. Ogden. No. 

Mr. Edmonds. If I charter a ship from you and I am going to 
run it to Rio de Janeiro and stop it and send it to Bahia by wire¬ 
less, can I do that? 

Mr. Ogden. Yes, sir. 


MARINE INSURANCE. 


23 


Mr. Edmonds. Would you charge me anything extra on the insur¬ 
ance? 

Mr. Ogden. No, sir. That is what we called world-wide limits; 
the vessel can trade anywhere, except certain ports which are frozen 
up during the winter, such as Archangel or the Baltic. 

Mr. Edmonds. And your policy covers that? 

Mr. Ogden. Yes, sir. 

Mr. Edmonds. You know something about the deviation clause in 
some of the policies? 

Mr. Ogden. I am not familiar with it by that name, but I think it 
refers to the navigation limits on a policy which will, for instance, 
permit a vessel to trade only along the United States Atlantic coast, 
while not permitting her to go into the gulf or to the West Indies, or 
she can get a wider limit which will let her go from Maine to Rio de 
Janeiro, but that would not allow her to go trans-Atlantic. 

Mr. Edmonds. That is customary for the American insurance 
companies ? 

Mr. Ogden. Yes. sir; and it affects the rate. 

Mr. Edmonds. Is it customary for foreign insurance companies? 

Mr. Ogden. I think so. 

Mr. Edmonds. They do not give them the world-wide limit? 

Mr. Ogden. No; they limit the voyage that the vessel can go on. 

Mr. Edmonds. Would a foreign insurance company raise any objec¬ 
tion if a ship sailed from London to Bombay and then went to Con¬ 
stantinople ? 

Mr. Ogden. Yes, sir. 

Mr. Edmonds. They would want an extra charge ? 

Mr. Ogden. Yes, sir. Under conditions such as that, though, the 
policy would be canceled. That is the interpretation of the courts. 

Mr. Edmonds. The shippers here claim that the foreign insur¬ 
ance companies do not do that and I want to find out about it ? 

Mr. Ogden. I am not in close touch with commercial insurance at 
the present time, but from my experience of two or three years ago 
I would say that that clause was the same in the American and 
foreign policies. The rates may vary between the foreign and 
American companies. 

Mr. Edmonds. I presume there is a reason for that. Probably one 
harbor is more dangerous than another or getting into the harbor ? 

Mr. Ogden. And the waters that you go through may not have all 
the navigational aids, such as light ships, bell buoys, light-houses and 
things like that. 

Mr. Edmonds. That is one of the things that stand against Ameri¬ 
can shipping and we want to look into it and correct it somewhat. 

Mr. Kincheloe. What per cent cheaper did your bureau insure the 
vessels than the private American companies ? 

Mr. Ogden. About 25 or 30 per cent. 

Mr. Kincheloe. And at that rate you created a profit of about 
$17,000,000? 

Mr. Ogden. No; you are getting marine and war risk confused. 

Mr. Kincheloe. t am asking you about what per cent cheaper? 

Mr. Ogden. I can not give you the percentage of reduction which 
we had on war risk premiums, because they varied very rapidly. 

Mr. Kincheloe. Do you know how much profit accrued from that? 


24 


MARINE INSURANCE. 


Mr. Ogden. In the first 15 months we have had about $800,000 
profit or a little over 3J per cent margin. 

Mr. Kincheloe. How do you figure that you can do that cheaper, 
because you have no overhead charges? 

Mr. Ogden. Yes, sir; we had no taxes, no brokers’ commissions, 
which amount to 10 per cent of the premium, we had no heavy ex¬ 
penses for inspection, surveying of the vessels, to see that they were in 
good condition, and we had not a big pay roll. 

Mr. Kincheloe. Did you charge a greater rate on a ship that car¬ 
ried munitions of war than on a ship that carried just the ordinary 
tonnage ? 

Mr. Ogden. No, sir. 

Mr. Kincheloe. Would not the hazard be greater? 

Mr. Ogden. Yes, sir; but we took that on our general cover; we 
made no difference in the cargo. 

Mr, Lehlbach. Did the private companies made a difference? 

Mr. Ogden. They very often would; yes, sir. 

Mr. Lehlbach. On account of the character of the cargo ? 

Mr. Ogden. The danger of fire or explosion. 

Mr. Chindblom. Did you charge up the salary account of your 
division to the carrying charge of this insurance ? 

Mr. Ogden. It is not charged up in the figures which are before 
you, but it is charged up on the comptroller’s books. The salaries 
and expenses of running the office would not be over $30,000 a year at 
the present time. 

Mr. Kincheloe. Was that taken into consideration when you said 
that it was 25 per cent cheaper ? 

Mr. Ogden. Yes, sir. 

Mr. Kincheloe. You figured that in? 

Mr. Ogden. Yes, sir. 

Mr. Chindblom. What is the total amount of insurance carried on 
your books now? 

Mr. Ogden. A little over $1,000,000,000. 

Mr. Chindblom. Pretty big business? 

Mr. Ogden. Yes, sir. 

Mr. Lehlbach. Both kinds? 

Mr. Ogden. That is the value of the vessels. 

Mr. Lehlbach. And the vessels are insured for their full value ? 

Mr. Ogden. Yes, sir. 

Mr. Lehlbach. That is your liability, $1,000,000,000? 

Mr. Ogden. Yes, sir. We insure these vessels at really an arbitrary 
value, which is pretty close to their construction cost." It is impos¬ 
sible, in handling such a large fleet of about 1,000 vessels, to treat 
each one individually. We have to take them and apply a certain 
value against their dead-weight tonnage and also consider the age of 
the vessel. 

Mr. Kincheloe. Did you give the world-wide limit to all of these 
ships ? 

Mr. Ogden. Yes, sir; they can go anywhere. 

Mr. Kincheloe. What did you say the amount of the insurance in 
force was? 

Mr. Ogden. About $1,000,000,000. 

Mr. Kincheloe. Are you still writing insurance? 


MARINE INSURANCE. 


25 


Mr. Ogden. Yes, sir. Steamers are coming out at the rate of about 
120 a month, and, of course, we place the insurance as soon as they 
come out. I do not know how long that will continue. While it 
does we will write the insurance. 

Mr. Edmonds. You built a composite vessel at Jacksonville—steel 
and wood. It left Jacksonville, was four days at sea, and arrived in 
New York, and was found unseaworthy and afterwards sold. Do 
you consider that as a marine loss and take it in as a loss ? 

Mr. Ogden. I do not want to take those in as losses. I have not 
had to decide one of those cases yet, but I am objecting very seri¬ 
ously to unseaworthy vessels. 

Mr. Edmonds. This ship was the steamer Kanabec , one of the 
composite vessels. She was four days at sea and was sold at a loss of 
$500,000 in round figures. Of course, when she went to sea you 
insured her? 

Mr. Ogden. Yes, sir. 

Mr. Edmonds. And when she arrived as unseaworthy she was sold 
at a loss? 

Mr. Ogden. Yes, sir; I believe so. 

Mr. Edmonds. Would that be an insurance charge? 

Mr. Ogden. I should say not. If the Division of Operations can 
show us that she was seaworthy at the time she sailed, we will have 
to pay for the cost of repairing the damage sustained during the 
voyage, but I think that is all. We would not pay for her ordinary 
depreciation. 

Mr. Edmonds. You have confined your operations entirely to the 
payment of losses occasioned by the action of the sea ? 

Mr. Ogden. Yes, sir. 

Mr. Edmonds. Or necessary damage such as would naturally occur 
in the mercantile business? 

Mr. Ogden. Yes, sir. 

Mr. Edmonds. You have not accepted any loss occasioned by poor 
construction ? 

Mr. Ogden. No, sir. 

Mr. Lehlbach. Was the Kanabec sold for cash or on time? 

Mr. Edmonds. For cash. 

Mr. Lehlbach. If she had been sold for so much cash and the 
balance under a mortgage, under the practice of your board would 
you have carried insurance for the mortgage interest? 

Mr. Ogden. Yes, sir.; we would have, provided the owners had not 
been able to obtain the insurance in the open market. 

Mr. Lehlbach. At the same rate that you would charge? 

Mr. Ogden. No; they would have to get it at a reasonable rate, 
which at the present time is 10 per cent on a wooden ship whereas 
our rate on a wooden steamer is 7 \ per cent. The steamer Kanabec 
I happen to know a little about. I did not know that she had been 
sold. She came up to New York and had quite a serious collision in 
New York Harbor, which may have had something to do with the 
cause of her sale. 

Mr. Lehlbach. The Division of Operations, so far as its relation 
with your Division of Insurance is concerned, is practically the owner 
and you are the underwriter? 

Mr. Ogden. Yes, sir. 


26 


MARINE INSURANCE. 


Mr. Leiilbach. And in practice you have no discretion or option 
as to what you will write; you have to write what they present at the 
figures presented ? 

Mr. Ogden. Yes, sir. 

Mr. Lehlbach. And at the valuation and at the rate of seaworthi¬ 
ness that they present ? 

Mr. Ogden. The question of seaworthiness really has to be ad¬ 
mitted as far as we are concerned. We have no choice. We do not 
inspect the vessels; I do not think our inspector would be able to stop 
a vessel from sailing if the agents wanted to send her. 

Mr. Edmonds. Did you take a loss on the Kanabec? 

Mr. Ogden. The documents have not come in yet, but I expect in 
all likelihood to ge the repair bills and have to approve them to be 
charged against the insurance fund. 

Mr. Edmonds. It is a pity you have to have a ship like the Kedbank 
which is pretty nearly as bad ? 

Mr. Ogden. The ship which the Kanabec took the cargo from was 
worse. 

Mr. Chindblom. You are pretty nearly insuring against unsea¬ 
worthiness ? 

Mr. Ogden. Yes, sir; pretty nearly. 

Mr. Alexander. Your whole business amounts to this: You have 
taken these rates of insurance which were fixed by Mr. Chubb formerly 
and you have charged each of these vessels with the premiums based 
on those rates and against them you have charged off the loss and 
damage by reason of collisions, injuries at sea, and marine reasons? 

Mr. Ogden. Yes, sir. 

Mr. Alexander. In determining what your losses were. In other 
words, if you had not this bureau at all the result would be the same; 
in other words, if there was any loss it would come out of the Treas¬ 
ury of the United States? 

Mr. Ogden. Yes, sir. 

Mr. Alexander. And these profits that you speak of are purely 
book profits in the way of insurance ? 

Mr. Ogden. Yes, sir. There is a point there that comes up. In 
handling any steamer the insurance is a very large item of her ex¬ 
pense, and there could be no record kept of the earnings of a vessel if 
we did not charge the insurance against it. 

Mr. Alexander. I see the wisdom of that. 

Mr. Ogden. And that also spreads the loss out over the fleet in¬ 
stead of saddling one vessel with a heavy loss at any one time. 

Mr. Alexander. I do not know whether it is true, but it is my 
information that the Government of the United States does not 
carry any insurance on any of its property. On its buildings like 
the Capitol and the Congressional Library there is no fire risk 
carried, because the Government has so much property and it is so 
widely scattered that it estimates it can carry its own insurance 
cheaper than it can insure in any company. 

Mr. Ogden. The Government risk is so widely scattered that any 
profit might just as well stay with the Government. 

Mr. Alexander. The Government can carry the risk cheaper un¬ 
doubtedly in the first instance than any private insurance com¬ 
pany ? 


MARINE INSURANCE. 


27 


Mr. Ogden. Yes, sir. 

Mr. Alexander. You have demonstrated that fact by your book 
profits ? 

Mr. Ogden. Yes, sir. 

Mr. Kincheloe. How does your bureau adjust losses? For in¬ 
stance, a ship is out at sea and is injured in docking, who adjusts 
that loss? 

Mr. Ogden. The vessel comes in and the necessary repairs are 
made. Then we check those repairs very carefully with the dam¬ 
age sustained and if the damage is covered by our insurance we 
simply pay the repair bill or reimburse the comptroller for having 
paid the repair bill. 

Mr. Kincheloe. Even if you ascertain beyond a doubt that it was 
due to the negligence of the crew? 

Mr. Ogden. The insurance covers negligence, provided that the 
vessel was properly manned and equipped when she sailed. 

Mr. Kincheloe. And if the ship is a total loss you pay the face of 
the policy? 

Mr. Ogden. Yes, sir. 

Mr. Kincheloe. Who fixes the amount that a ship is to be insured 
for? Suppose I have a ship that I would say was worth $500,000 
and I came to you and wanted that much insurance when, as a mat¬ 
ter of fact, it would not be worth $250,000, who settles that ? 

Mr. Ogden. That point in connection with the requisitioned ships 
which were privately owned was decided in this way: The Govern¬ 
ment agreed to pay “ just compensation ” for the loss of a ship. 
They would not specify an amount, but after a ship was lost a com¬ 
mittee of four or five men in New York went over the ground and 
appraised that ship. 

Mr. Kincheloe. Representing your bureau? 

Mr. Ogden. Representing the Shipping Board. The owners had 
the privilege of appearing before the committee. The committee has 
valued at least a dozen ships that I know of and the money has been 
paid and I have not heard of any very strenuous kick. 

Mr. Kincheloe. How would that committee know how to fix the 
loss if they never saw the ship ? 

Mr. Ogden. There are very complete records of all of these ships. 
They are of a certain class and you can get the figures as to how 
much it cost to build them; you can apply a certain depreciation for 
age; you can consider the capacity, the amount of cargo she can carry, 
and the freight she can earn and, considering all of those matters, 
the experts can come to a conclusion. 

Mr. Kincheloe. In other words, you arrive at it a general way 
in a specific case ? 

Mr. Ogden. They take each case separately. 

Mr. Kincheloe. But the way you arrive at that is in a general 
way? 

Mr. Ogden. Yes, sir. 

Mr. Chindblom. The owners are in no way bound to accept the 
findings of that committee? 

Mr. Ogden. No; they have the privilege of accepting a certain per¬ 
centage and then filing a claim with the Court of Claims. 

Mr. Chindblom. Was there any danger that the committee would 
have to be quite liberal under those circumstances where the owners 
would not be bound to accept the findings ? 


28 


MARINE INSURANCE. 


Mr. Ogden. I think in a way that worked the other way. The 
owners would much rather have a smaller amount of money in their 
hands than go to the Court of Claims and wait for it. 

Mr. Edmonds. On page 7 of this memorandum I notice that in 
March, 1919, you lost $1,399,000, and in May, 1919, you lost $251,000. 
How did that come about? 

Mr. Ogden. Because the losses were very heavy. 

Mr. Edmonds. There was no war risk. 

Mr. Ogden. Those are marine losses. 

Mr. Edmonds. The estimated losses in March were $1,494,600? 

Mr. Ogden. That was a war loss, a vessel having struck a mine. 

Mr. Edmonds. During the month of March? 

Mr. Ogden. Yes, sir. That was the total loss of one of the Dutch 
steamers. 

Mr. Edmonds. In May, 1919, the estimated losses were $367,500 
and the unearned premiums $234,705 or a loss of $251,000. 4 ou had 
$350,616 paid in premiums and a loss of $367,500, or a little over? 

Mr. Ogden. Yes, sir. 

Mr. Edmonds. How did that come about? 

Mr. Ogden. There was the total loss of another steamer. The first 
figures show the full amount of the premiums which we have en¬ 
tered during the month. The unearned premiums are arrived at in 
this way: If the original risk continued three months, that is, if it 
would take three months for the vessel to complete the voyage, at the 
end of the first month we consider the premium one-tliird earned. In 
other words, if for any reason we had to cancel that policy we would 
have to return two-thirds of the premium and pay any loss which 
occurred during that time. At the end of the month we do not con¬ 
sider that we have earned all the premium which has been entered, 
only one-third. 

Mr. Kincheloe. You would not pay back any premium in the case 
of a total loss? 

Mr. Ogden. No, sir. 

Mr. Edmonds. You carry that as a war-risk premium? 

Mr. Ogden. Yes, sir. 

Mr. Edmonds. You made money in the month of March, taking 
the whole business together and still you carried it at a low rate ? 

Mr. Ogden. Yes, sir. 

Mr. Edmonds. Maybe the rate was too low ? 

Mr. Ogden. Not if we take the six months together. I only hap¬ 
pened to pick out the two months in which we had the only total 
losses. 

Mr. Edmonds. You wanted to show us how you were getting 
along ? 

Mr. Ogden. I did not pick those out with any particular inten¬ 
tion; I just happened to pick them out. 

Mr. Chindblom. Is the rate annual? 

Mr. Ogden. The marine rate is annual and the war-risk rate is for 
the voyage. 

Mr. Edmonds. And when a ship is sold the insurance is canceled ? 

Mr. Ogden. Yes, sir. 

Mr. Chindblom. What do you estimate the total premiums on the 
$1,000,000,000 value of vessels now covered? 


MARINE INSURANCE. 


29 


Mr. Ogden. Three and one-half per cent. One-twelfth of that is 
earned each month. 

Mr. Chindblom. That is an annual premium of 3J per cent? 

Mr. Ogden. Yes, sir. 

Mr. Edmonds. That is on the regular marine insurance? 

Mr. Ogden. Yes, sir. 

Mr. Edmonds. And the war risk is extra ? 

Mr. Ogden. Yes, sir. If vessels go to such a port as Archangel 
where there are few aids to navigation, we charge an extra marine 
premium. 

Mr. Edmonds. That would be the regular way with every insur¬ 
ance company ? 

Mr. Ogden. Yes, sir. 

Mr. Edmonds. Do you carry war risk on the vessels going into 
the danger zones? 

Mr. Ogden. To France, England, Denmark, Scandinavia, and also 
to the Mediterranean. 

Mr. Edmonds. And to South America? 

Mr. Ogden. Yes, sir; and in the Pacific. 

Mr. Lehlbach. In the total loss that the Shipping Board through 
this committee and later through the Division of Insurance sus¬ 
tained, about what is the total number of vessels embraced in that 
list? 

Mr. Ogden. The number of vessels has varied a great deal. When 
we requisitioned steamers, I think we took over about 600. 

Mr. Lehlbach. What is the number of vessels upon which you 
have paid losses ? 

Mr. Ogden. It is awfully hard to get any figures on that, because 
some vessels have suffered two or three losses and others run along 
with no trouble. 

Mr. Edmonds. Do you carry a complete list of the losses? 

Mr. Ogden. Yes, sir. 

Mr. Lehlbach. That list is easily ascertainable by referring to 
your books ? 

Mr. Ogden. Yes, sir. I have a pretty comprehensive list here of 
the losses. 

Mr. Edmonds. With the reasons? 

Mr. Ogden. No; just the date of the accident. 

Mr. Edmonds. Can you furnish us with a list of your losses that 
you have paid or wdiich you estimate you will have to pay up to date, 
with a little note as to the collisions, and also whether sunk by tor¬ 
pedo or submarine ? 

Mr. Ogden. Yes, sir. I can also give you a list showing the col¬ 
lisions. 

Mr. Edmonds. And the name of the vessel ? 

Mr. Ogden. If you want that I can do it. 

Mr. Edmonds. There is no objection to that? 

Mr. Ogden. None at all. 

Mr. Chindblom. Please put under separate headings losses by 
collisions so much and losses by mines so much. 

Mr. Edmonds. And please give us the date and where it occurred, 
if a collision, and whether , sunk by submarine or torpedo, and in 
what waters. 

Mr. Kincheloe. And please give the name of the vessel. 


30 


MARINE INSURANCE. 


Mr. Lehlbach. One is marine loss and the other war-risk loss? 
Mr. Ogden. Yes, sir. 

Mr. Lehlbach. Do you keep them separate? 

Mr. Ogden. Yes, sir. 

Mr. Lehlbach. Please furnish that information to the committee. 
Mr. Ogden. Yes, sir. 

Mr. Kincheloe. Of course, you have sold a large number of ships 
since the war ended? 

Mr. Ogden. Yes, sir. - 

Mr. Kincheloe. Do you convert the insurance to the private 
marine insurance companies as you sell them? 

Mr. Ogden. The owner of the vessel is encouraged to place as 
much of the insurance as possible with private companies. 

Mr. Kincheloe. Suppose I should buy one to-day for $1,000,000 
and I really wanted to continue to get the benefit of the low rate of 
the Government insurance, would you permit me to do that? 

Mr. Ogden. In case it was impossible for you to insure at a reason¬ 
able rate outside. 

Mr. Kincheloe. It is not impossible to do that now, is it? 

Mr. Ogden. It depends somewhat on the vessel. Wooden vessels 
are very hard to insure. 

Mr. Kincheloe. The private companies do not solicit that busi¬ 
ness? 

Mr. Ogden. No, sir. 

Mr. Kincheloe. If I bought a wooden vessel and I could not get 
insurance in the private companies, then would you continue to in¬ 
sure it? 

Mr. Ogden. We would only continue to insure the Government 
interest. 

Mr. Kincheloe. Suppose that I paid cash? Would your bureau 
decline to write me Government insurance? 

Mr. Ogden. Yes, sir. 

Mr. Kincheloe. In other words, the only insurance that you will 

g ive now for the vessel purchased is where the purchaser owes the 
rovernment or your bureau? 

Mr. Ogden. Yes, sir; we have no authority to do a commercial 
insurance business. 

Mr. Kincheloe. As I recollect that loss on the ships will finally 
come out of the business of the individual ships ? 

Mr. Ogden. Yes, sir. 

Mr. Kincheloe. And that is the policy, as I understand Mr. 
Hurley, of your bureau now? 

Mr. Ogden. Yes, sir; and also the policy of the Law Division. 
Mr. Lehlbach. We are much obliged to you, Mr. Ogden, and for 
the present we will not ask you to return. 

STATEMENT OF MR. JOHN W. GRIFFIN, ASSISTANT ADMIRALTY 

COUNSEL. 

Mr. Edmonds. What is your position? 

Mr. Griffin. I am assistant admiralty counsel for the board and 
have been so employed for about one year—not quite a year. The 
point that I chiefly want to emphasize is one which I think Mr. 
Ogden has already made clear, namely, that it appears to me to be 


MARINE INSURANCE. 


31 


misleading to employ insurance phraseology in speaking of this 
situation, which is really a bookkeeping situation. In other words, 
the President was empowered by Congress, in the emergency ship¬ 
ping act, to requisition certain vessels, to construct certain vessels, 
and then to operate the vessels so secured. He was further given 
authority to delegate that power, and he did delegate it to the Ship¬ 
ping Board. The Shipping Board was therefore in the position of a 
shipowner with a fleet to operate and had, I take it; to consider 
whether it should carry its own insurance risks, as many large com¬ 
mercial companies do, or whether it should secure outside insurance. 

The decision was to carry its own risks, but it is really a book¬ 
keeping matter, and it created a separate insurance division to carry 
the risks which an underwriter would ordinarily carry. But the 
fact that it has not considered that as an insurance business is 
emphasized by the fact that there have been certain isolated situa¬ 
tions in which it would have been advantageous; for the board to place 
insurance, for instance, on cargoes. There have been some cases 
where wooden ships, for instance, could have been handled to better 
advantage, in view of the high cargo insurance rates on those vessels, 
if the board as charterer could have said “We will carry the cargo 
risk.” The board, however, has uniformly refused to do that, for 
the reason that it is not empowered to conduct a commercial insurance 
business. It has not gone into the insurance business, as I look at it, 
but it has merely been carrying its own risks and establishing machin¬ 
ery in the Division of Insurance for the purpose of placing its trans¬ 
actions on a basis where they could be compared with those of an 
ordinarily operated steamship company. 

I might also call attention to this difficulty, which is more or less 
inherent in any scheme of Government marine insurance and which 
possibly might be of importance in considering legislation. Marine 
insurance is peculiar in that accidents happen all over the world, 
and, further, that those accidents usually require the most prompt 
action. Cargoes are perishable and the ships are valuable. The 
private underwriters have their representatives all over the world, 
and I think one difficulty that Mr. Ogden has sometimes had in 
handling these situations is the lack of a corresponding world-wide 
Government organization. Is that correct, Mr. Ogden? 

Mr. Ogden. It is. 

Mr. Griffin. Whether any plan can be devised by which that 
objection can be met for any future business that may be done under 
Government auspices is a matter for consideration. 

I might also speak of the project which has been under discussion 
to secure in the general interest of water-borne commerce a standard¬ 
ization both of bills of lading and of insurance policies, so that the 
risks from which the carrier is exempt by the bill of lading will be 
accurately covered by the insurance, with no overlapping and no 
underlapping. 

Mr. Edmonds. Would not that have to be an international agree¬ 
ment? 

Mr. Griffin. That, to be thoroughly effective, would have to be an 
international agreement; yes. It exists now merety in the minds of 
certain men who are interested in having those documents on a fair 
and uniform basis. It is possible that insurance legislation might 


32 


MARINE INSURANCE. 


take into account that possibility and in that connection prescribe 
some form of policy. 

Mr. Edmonds. Do you think we have the right to prescribe the 
policies of private companies? We would not have any more than 
the right to recommend. 

Mr. Griffin. It would be carrying the control over foreign com¬ 
merce pretty far to do it. 

Mr. Edmonds. I doubt whether we could pass any legislation 
which would prescribe the form of insurance policies. 

Mr. Griffin. That is very possible. 

Mr. Edmonds. And yet it would be a matter of great advantage if 
all the w T orld should utilize the same kind and character of policy. 

Mr. Griffin. A uniform bill of lading would almost necessarily 
result ultimately in a uniform form of policy. 

Mr. Edmonds. I presume we have the right to prescribe some kind 
of a uniform bill or lading? 

Mr. Griffin. Insurance has been held not to be commerce, so I 
suppose the power of Congress to regulate insurance would be 
more doubtful. 

Mr. Lehlbach. Might that not be worked out in this manner, by 
the Federal incorporation of insurance companies? 

Mr. Griffin. Oh, possibly. 

Mr. Lehlbach. It would extend to them certain advantages and, 
as a condition of such incorporation, require that the companies ac¬ 
cept a form of policy. 

Mr. Griffin. Possibly. I think, though, that unless that could 
be internationalized it might lay burdens on American interests that 
would be undesirable. As Mr. Ogden suggests, the States to some 
extent control the situation now. 

Mr. Kincheloe. As a lawyer, you would not think Congress has 
the power to extend that further than to those under American 
registry ? 

Mr. Griffin. No ; and the whole commerce of the world is so inter¬ 
woven that a regulation of that sort applied to one nation, unless 
it was generally adopted, would be exceedingly difficult to handle and 
operate. 

Mr. Edmonds. A little aside from the line you are in, but owing to 
the fact that you are an admiralty lawyer and must of necessity 
have some knowledge along this line, I am going to ask you this 
question: Insurance companies in this country at present are not 
strong enough to take the amount of insurance that would be neces¬ 
sary to cover the ships under American registry? 

Mr. Griffin. I presume that is so; yes, sir. 

Mr. Edmonds. It would be necessary to reinsure in foreign com¬ 
panies and in that reinsurance the business would get in the hands 
of foreigners just the same as it has before? 

Mr. Griffin. It would be my opinion—although it is a matter 
about which a practical steamship man could speak with more au¬ 
thority—that the character of business done and the cargoes carried 
by the vessels are pretty well known throughout the world anyway. 
A charter is made and the market knows, in general, who has the 
ship and where she is going, and, if anyone is interested, he can find 
out what she is carrying, and anyway the customs records would 
show it. 


MARINE INSURANCE. 


33 


Mr. Edmonds. They are open to the public? 

Mr. Griffin. I understand so; but I do not know just how far 
they are open to the public—that is, as to the manifests and bills of 
lading that are filed, and I do not know whether any mere curiosity 
seeker would be allowed to see them. Mr. Ogden suggests that the 
Journal of Commerce and other newspapers very often publish the 
particulars of cargoes and such things. I do not think there is much 
secrecy about it. Of course, as to rates and terms there may be. 

Mr. Edmonds. Would it make very much difference, then, if we 
just let the insurance companies take all the insurance and reinsure? 

Mr. Griffin. So far as publicity is concerned? 

Mr. Emonds. No. Would it really make very much difference, in 
building up our merchant marine, if Ave simply allowed our insurance 
companies to take all the policies they wanted to take and reinsure 
with whatever foreign companies they desired ? 

Mr. Griffin. That is a question I should not like to answer offhand, 
because I do not know enough about the technical insurance and 
commercial end of it. 

Mr. Lehlbach. In other words, as I understand Mr. Edmonds’s 
question, it is this: Is there any need for legislation which will en¬ 
courage the American underwriting of American bottoms? 

Mr. Griffin. I should imagine that American underwriters could 
handle American business more satisfactorily, other things being 
equal, than foreign companies. 

Mr. Kincheloe. Do they or can they write as cheaply as foreign 
insurance companies ? 

Mr. Griffin. That, again, is a practical question of insurance that 
I do not feel competent to answer. I do know this, that in the past, 
for example, on war-risk insurance policies, which I have had occa¬ 
sion to see, we usually find that in private practice they distribute 
the business betAveen American companies, Norwegian companies, 
and British companies. 

Mr. Kincheloe. Do you find the rates practically the same ? 

Mr. Griffin. I think Mr. Ogden can tell you more about that than 
I can. 

Mr. Ogden. Is that war risk? 

Mr. Griffin. Yes. 

Mr. Ogden. A great deal of the war-risk insurance has been done 
by the Governments; the English Government did a large amount of 
it and their rates Avere low, and the Bureau of War Risk Insurance 
was a good deal lower than the market in America. But it is hard to 
check that up, because that is more according to the feelings of an 
underwriter for the reason that he might have an idea that a certain 
vessel was going to be torpedoed. 

Mr. Kincheloe. My idea was as to future insurance. I understand 
you are not writing war-risk insurance now ? 

Mr. Ogden. No; that has stopped. 

Mr. Kincheloe. Can the American companies compete with the 
foreign companies on marine insurance or do they ? 

Mr. Ogden. My idea is that the foreign companies are a little bit 
lower. 

Mr. Kincheloe. Your idea is that the rates are a little bit lower in 
Europe ? 

160770—20-3 


34 


MARINE INSURANCE. 


Mr. Ogden. Yes. 

Mr. Kincheloe. How do you account for that ? Is it because their 
overhead charges are less? 

Mr. Ogden. No; it is because of the increased volume of business 
and the distribution of the risk. 

Mr. Chindblom. An increase in the business of the American com¬ 
panies would obviate both of those differences. 

Mr. Ogden. Yes. There is a point that must be considered. We 
are largely talking about rates and conditions before the war and 
at the. present time all repair costs have gone up from 50 to 100 per 
cent and, of course, that puts the burden right on the underwriters. 

Mr. Chindblom. Would not that same think apply to the foreign 
companies as it applies to the American companies? 

Mr. Ogden. Yes; but it is rather hard to check up, as far as I 
know, what the conditions are in the foreign companies at the present 
time. The insurance rates have not gone up proportionately with the 
cost of repairs. 

Mr. Edmonds. If we were to continue this insuring of mortgages 
that we take on these ships being sold, you would expect that to be 
done through your department, would you not? 

Mr. Ogden. Yes. 

Mr. Edmonds. Instead of the Bureau of War Risk Insurance? 

Mr. Ogden. Yes. 

Mr. Edmonds. In other words, it would mean a continuance of 
your Division of Insurance? 

Mr. Ogden. Yes, sir. 

Mr. Edmonds. Suppose a man who buys a ship and gives you a 
mortgage on it can get insurance from either American or foreign 
companies, would there be any advantage in continuing your de¬ 
partment ? 

Mr. Ogden. No ; and I think it is the idea of the Shipping Board 
to have the new owners place as much insurance as possible with the 
commercial companies and relieve us of it. 

Mr. Edmonds. Is it the idea of the Shipping Board to object to the 
placing of it with foreign companies ? 

Mr. Ogden. It has not been so far that I know of; in fact, I know 
of one or two cases where practically the whole risk was placed with 
foreign companies. 

Mr. Kincheloe. Did they write it as cheaply as your bureau did? 

Mr. Ogden. No ; I do not think they did, but I have not seen those 
rates. 

Air. Edmonds. I think the idea is this: That the American insur¬ 
ance companies are growing stronger every day in marine insurance, 
and there are more of them taking it up, and that by carrying this 
insurance with the Shipping Board we can eventually keep all of the 
insurance on these ships in this country. Now, there may be some 
particular advantage about this and I am trying to find out what it is. 
Of course, there is a great advantage, looking at it from our stand¬ 
point, in having all of this insuring done in this country and all the 
money paid in this country, and if by holding back and having 
governmental insurance on a portion of the ships we can so encour¬ 
age these American insurance companies that they will gradually 
grow stronger until they can hold the whole risk, then we can go 


MARINE INSURANCE. 


35 


out of business, and it may be a very good thing. But I am trying 
to find out exactly what that reason is. 

Mr. Griffin. Of course, keeping this money in this country is one 
reason, and another reason is that in case of any discrimination 
abroad against American vessels on the part of underwriters or any 
possible governmental regulation that would work to our disadvan¬ 
tage, we would be in a position to paddle our own canoe, as far as 
insurance is concerned. 

Mr. Chindblom. We might at some time be at the mercy of the 
foreign companies, might we not? 

Mr. Griffin. Exactly. 

Mr. Chindblom. Suppose they wanted to make it as difficult as 
possible for Americans to engage in foreign commerce; they might 
get the notion to raise the cost of our insurance so as to cripple us. 

Mr. Griffin. That is right, sir. 

Mr. Kincheloe. That would raise the question as to whether it 
would b$ good policy for us to go out of this Government insurance 
business too rapidly. As far as this investigation is concerned, as 
one member of the committee, I am not so much interested in what 
you did in war times but in what can be done to provide a great 
American merchant marine. That is what I want to see done. 

Mr. Edmonds. My idea was to ascertain the value of this service 
and how far we could go to continue this insurance so as to keep 
it in this country? 

Mr. Kincheloe. I thoroughly agree with you. 

Mr. Chindblom. I suggested a moment ago the possibility of for¬ 
eign companies crippling us and I want to know whether, as a mat¬ 
ter of fact, that would be possible? 

Mr. Griffin. I should say it would be entirely possible. 

Mr. Chindblom. Is not the business of the world so interwoven 
that it would be pretty hard for one country to discriminate against 
the rest of the world? 

Mr. Griffin. Well, it all depends on what acute commercial con¬ 
ditions might arise. 

Mr. Lehlbach. There would have to be an agreement as to that 
among the various countries. If England tried to raise the rates 
and the French and Germans—if Germany gets back into the game— 
should try to get the business, there would have to be a conspiracy 
that embraced all the countries in order to do all of the marine un¬ 
derwriting business. 

Mr. Griffin. I am not so sure that that would be the case. I 
imagine that if the British market were closed it would be enough 
to tie us up, because a great deal of our insurance is written in Great 
Britain. 

Mr. Kincheloe. Does this authority for Government insurance in 
the War Risk Insurance Bureau and the Shipping Board cease when 
the war is legally over? Do your powers cease under this act when 
the war is legally over ? 

Mr. Griffin. So far as the Shipping Board is concerned, the 
power which it has received from the President to operate ends six 
months after the proclamation of peace with Germany, and I take 
it that everything incident to that operation will cease at the same 
time. 


36 


MARINE INSURANCE. 


Mr. Lehlbacu. So far as the War Risk Insurance Bureau is con¬ 
cerned, it ends two years after the war if not sooner. 

Mr. Ogden. And they really ceased to do business the first of the 
year ? 

Mr. Edmonds. I can see where the Shipping Board under the 
original shipping act could continue doing just exactly what it is 
doing, because there was $50,000,000 appropriated as a revolving 
fund wit'll which to buy and sell ships. Now, six months after the 
war is over, they are going to have some ships, and they are going 
to have to run those ships, and they will have $50,000,000, or a por¬ 
tion of it, and if they wish to set aside $5,000,000 or $10,000,000 of it 
as an insurance fund there would be no reason why they should not 
do so, because they have no authority at the present time for doing 
what they have done, except the President’s general authority, and 
I am certain that the shipping act would give them that same general 
authority. 

Mr. Griffin. There are certain restrictions on the methods and 
extent of the operations in the original shipping act, and it would 
make it rather difficult to operate a fleet under that act alone. For 
example, section 11 forbids operation by the Fleet Corporation unless 
no private operators or purchasers can be secured. 

Mr. Edmonds. Then, it would require a change in legislation? 

Mr. Griffin. Yes. 

Mr. Edmonds. Yet I can see how, if they wished to utilize a por¬ 
tion of this fund for insurance, they could very easily work out 
arrangements by which it could be done. 

Mr. Griffin. So far as that goes, I think they could. 

Mr. Lehlbach. Are there any further questions for either this 
witness or Mr. Ogden? If not, the committee will excuse them for 
the time being. 

(Thereupon a recess was taken until 2 o’clock p. m.) 

(The subcommittee met pursuant to recess at 2 o’clock p. m.) 

AFTER RECESS. 

STATEMENTS OF MR. R. G. CHOIMELEY-JONES, DIRECTOR; MR. 

W. R. HEDGE, PRESIDENT OF THE BOSTON INSURANCE CO. 

AND MEMBER OF THE ADVISORY MARINE BOARD; AND MR. 

E. M. PETERS, ACTING COMMISSIONER MARINE AND SEAMEN’S 

DIVISION, BUREAU OF WAR RISK INSURANCE. 

Mr. Leiilbach. I think when the committee arose for a recess it 
was determined to hear Director Cholmeley-Jones, of the Bureau of 
War Risk Insurance. 

Mr. Cholmeley-Jones. What would you like me to review, Mr. 
Chairman ? 

Mr. Lehlbach. We would like you to outline the organization of 
your bureau, its activities, the cost of administration, your personnel, 
etc., in so far as it relates to the underwriting of maritime war risks. 

Mr. Cholmeley-Jones. The Bureau of War Risk Insurance was 
originally established to write marine and seamen’s insurance, war- 
risk insurance, and not the regular marine insurance. That was un¬ 
der a director who was Director De Lanoy. 


MARINE INSURANCE. 


37 


We have to date insured under the marine insurance $2,067,11’2,116 
worth of marine insurance. The premiums collected on that 
amounted to $46,746,409.33. The losses paid and pending amount to 
$29,940,795.59. The net profit on that marine business amounts to 
approximately $16,630,768.66. 

Mr. Lehlbach. That is less the administration charges? 

Mr. Cholmeley-Jones. Yes. In the seamen’s division against loss 
of life and injury, for the war risk, the net amount written is $322,- 
429,208.54, and the premiums collected amounted to $842,348.18. The 
losses, including those that are awaiting proof for adjustment, 
amount to $310,077.81. The expenses of doing that business amounted 
to $66,128.75, showing a net profit for the seamen’s division of $465,- 
701.06. The cost of the marine department from September 2, 
1914, to May 19, 1919, amounted to $174,845.08, making the total cost 
for operating the Marine and the Seamen’s Divisions $240,973.78. 

The bureau, as you all know, covered only the war risk, and it was 
optional with the owner of the hull or the cargo whether he wanted 
to insure the war risk except in the case of the seamen, where it was 
compulsory. The act provides that the Marine and Seamen’s Division 
of the War Risk Bureau shall have an advisory board of three com¬ 
missioners, and the three commissioners were Mr. Henden Chubb, 
whom you know, and who has recently resigned from the board; Mr. 
William N. Davey; and Mr. William R. Hedge, who is here to-day. 

Mr. Lehlbach. That is the same advisory board that the Shipping 
Board had originally? 

Mr. Cholmeley-Jones. The Shipping Board adopted the same ad¬ 
visory board. The rates and premiums were recommended by the 
advisory board and they were accepted. It was not compulsory that 
those rates be accepted, but it was the best counsel available, and it 
was wise to accept those rates. 

Mr. Lehlbach. Have you any knowledge as to how those rates 
w T ere arrived at ? I suppose on a war risk they could not be based on 
experience but largely on guess. 

Mr. Cholemeley-Jones. I would like to ask Mr. Hedge to answer 
that question. 

Mr. Hedge. That is true, Mr. Chairman, of all marine rates. Of 
course, the act provided for three men experienced in war risk. Of 
course, none of us had lived through many wars, but we had very 
close figures kept, and each month we figured out just exactly whether 
the bureau was running ahead or running behind, and also we had the 
market rates. Mr. Chubb and myself were running insurance com¬ 
panies, and we knew what we were charging in our companies and 
what was generally being paid in the market. We also knew what 
the British Government was charging in their rates, and, as a rule, 
what the French Government was charging. The object of the act 
was to supplement the American market and provide insurance where 
it could not be secured at reasonable rates. The Government was then 
ready to take it, so that the American merchants could always come 
to the Government and get insurance at reasonable rates. 

Mr. Lehlbach. How did the market compare with the rates that 
you fixed ? 

Mr. Hedge. When we reduced rates the market usually followed 
the reductions, but not altogether. Sometimes our rates were lower 


38 


MARINE INSURANCE. 


than the individual companies cared to write. The business was not 
all done, as Mr. Cholmeley-Jones pointed out, by the bureau, as a 
great many merchants preferred to insure with insurance companies 
that they had always insured with and pay extra. 

Mr Lehlbach. The act establishing the bureau says that the 
Bureau of War Risk Insurance shall, etc., make provisions for the in¬ 
surance bv the United States of American vessels, their freight and 
passage moneys, and cargoes shipped, etc., against loss and damage 
bv the risks of war whenever it shall appear to the Secretary that 
American vessels, shippers, or importers in American vessels aie un¬ 
able in any trade to secure adequate war-risk insurance on rea- 
sonable terms. How t was that proviso applied? Strictly, would 
you chase prospective customers away and make them prove that 
they could not get insurance anywhere else. 

Mr. Hedge. No. 

Mr. Lehlbach. Or would you assume when they applied to you 
that they had been unable to place the insurance elsewhere? 

Mr. Hedge. If we had followed your first suggestion, we would 
have defeated the object of the bureau. In the early days we took 
limited amounts, and then if we found that the market was filled up 
and that there was a constant demand, we increased those amounts. 
Of course, we had pretty good information as to the demand. At 
the time of the war values were tremendously high. The values of 
the ships were high and the values of the cargoes were high, and 
there were cargoes running as high as seven or eight million dollars 
coming from the rivers. 

For instance, you take the Barbour Line of vessels from the River 
Plata with full cargoes of wool, they would run on up to seven or 
eight million dollars, and the object of the bureau made it abso¬ 
lutely necessary to protect the merchants; but to answer definitely 
your question, we could not have followed up and made sure that 
every insurance company had its full line. That would have been 
absolutely impracticable. 

Mr. Cholmeley-Jones. When any application was made for in¬ 
surance, we wrote it so far as the war risk was concerned. 

Mr. Lehlbach. How did your premiums compare with the pre¬ 
miums of foreign Governments? 

Mr. Hedge. We were on an entirely different basis. The British 
Government started out with one rate; that is, they would cover the 
risk from Calcutta to London at the same rate they would take it 
from Havre to London. We started on an entirely different basis. 
We made a rate from the United States Atlantic coast to Great 
Britain, and we had another rate out to the Far East, and w T e had a 
third rate down to South America, etc. I think we had twenty-odd 
different classifications, and we graded the rates according to the in¬ 
dividual risk in each class. On our coast, for instance, the rate was 
nominal, because there was practically no risk. When we ended we 
had about 40 different classes. 

Mr. Edmonds. That just covered the war risk, of course? 

Mr. Hedge. That just covered the war risk alone. That is all the 
act covered. It did not cover what we ordinarily call marine insur¬ 
ance. 

Mr. Edmonds. That was taken care of by the ordinary companies? 

Mr. Hedge. Yes. ' 


MARINE INSURANCE. 


39 


Mr. Edmonds. Are you taking on any insurance now? 

Mr. Cholmeley-Jones. No; that lias stopped. 

Mr. Edmonds. It has stopped absolutely? 

Mr. Cholmeley-Jones. Yes; no contracts are being made. We are 
not taking a single contract, but we are making adjustments on old 
contracts. 

Mr. Edmonds. And you are not taking any seamen’s insurance? 

Mr. Cholmeley-Jones. No, sir. 

Mr. Edmonds. Then you are virtually out of business? 

Mr. Cholmeley-Jones. Yes. 

Mr. Edmonds. Have you anv general report as to the financial 
status of the operation outside of what you gave us just now? 

Mr. Cholmeley-Jones. Oh, yes; I can furnish that. I have given 
you the net. 

Mr. Edmonds. Can you give it to us in a more itemized form? 

Mr. Cholmeley-Jones. Yes; very easily. 

Mr. Edmonds. Will you furnish that information with your testi¬ 
mony ? 

Mr. Cholmeley-Jones. I will be very glad to do so and will fur¬ 
nish it to-day. 

Mr. Edmonds. This will virtually then clean that business up ? 

Mr. Cholmeley-Jones. Yes; it was strictly a war risk. 

Mr. Edmonds. And that department is virtually abolished now? 

Mr. Cholmeley-Jones. Yes. It is interesting, for your informa¬ 
tion, to state that the total amount of money appropriated to the 
Marine and Seamen’s Division has been approximately $50,000,000. 
We collected in premiums $46,746,409.33. The losses were $29,- 
940,795.59, so we have had a net profit of nearly $17,000,000, and the 
bureau has shown that profit without touching the $50,000,000. Now, 
whether or not for a time we used part of that $50,000,000 I do not 
know, but just looking at it from the result the bureau itself has 
shown this profit of about $17,000,000. 

Mr. Lehlbach. You keep } T our war-risk insurance absolutely sepa¬ 
rate ? 

Mr. Cholmeley-Jones. Absolutely separate. 

Mr. Lehlbach. From your soldiers’ and sailors’ accounts? 

Mr. Cholmeley-Jones. Yes; and here is a thing that has no direct 
bearing on this matter, but I think you would like to have it as a 
matter of information, although not necessarily for this record. The 
operation of the entire Bureau of War Risk Insurance, if, for in¬ 
stance, you took that profit and credited it to the operation of the 
bureau as a whole, the bureau in its entire operation, except the 
appropriations for allowance and compensation, would have cost 
the Government to date only $2,000,000. It has cost us about 
$19,000,000 to date. 

Mr. Edmonds. You mean with this profit off? 

Mr. Cholmeley-Jones. Yes; all the administrative overhead. 

Mr. Edmonds. In other words, you made enough out of the ship¬ 
ping end to- 

Mr. Cholmeley-Jones (interposing). To almost cover the entire 
operation of the bureau. I think that is interesting to you who 
have created the act. 

Mr. Edmonds. Well, it is very satisfactory considering the way 
money is nowadays. 



40 


MARINE INSURANCE. 


Mr. Cholmeley-Jones. Yes. We have that profit and we still 

have the $50,000,000. , 

Mr. Edmonds. Of course your report would indicate that there 
is an enormous profit in marine insurance. 

Mr. Cholmeley-Jones. On the war risk part of the marine in¬ 
surance. . . . 

Mr. Edmonds. Yet, as a matter of fact, had you paid a commission 
to agents as the marine insurance companies have had to do you 
have not made any more money than would have covered that 
In other words, if the insurance companies had been writing this 
they would probably have paid to the agents 10 per cent for 
writing it. 

Mr. Cholmeley-Jones. Yes. 

Mr. Edmonds. You covered so many hundred million dollars’ 
worth of insurance and if that 10 per cent was figured on the insur¬ 
ance or on the premiums, the probability is that the marine insur¬ 
ance companies are no better off than you are. In other words, you 
made as much as they would less the commission. 

Mr. Cholmeley-Jones. Yes; that would be very easily determined 
because you would only have to figure the profit on the volume 
written. 

Mr. Edmonds. You do not take into consideration the rent of 
offices here in Washington or anything like that in your report ? 

Mr. Cholmeley-Jones. No, sir; but that could be very easily fig¬ 
ured, because we could tell very easily the number of personnel and 
you can average the square foot area per employee. 

Mr. Lehlbach. Suppose we have a resume of the personnel en¬ 
gaged in the marine war risk end of your department. 

Mr. Cholmeley-Jones. Yes. The maximum number of employees 
for both the marine and seamen’s section was 89 employees.* There 
are now the acting commissioner, Mr. Peters, one messenger, and 
seven clerks. To-day there are only nine people in that section, and 
at the maximum there have only been 89 people, so that the office 
overhead which you so well inquired about would be at the rate of— 
some of our space down there for our employees is so small that I do 
not dare tell it, about 35 square feet per person, when you are sup¬ 
posed to have between 40 and 45, and when you include the files you 
ought to have 60. but we are rather congested, although it is all right 
and we are working well under those conditions. 

Mr. Edmonds. How long do you think it will be before you get all 
this work cleared up? 

Mr. Cholmeley-Jones. We are clearing it up very quickly. How 
soon do you think, Mr. Peters ? 

Mr. Pelers. We can clear it up as soon as the people who have 
claims will present their claims. We have less than 40 outstanding 
claims in the marine section. In the seamen’s division we can clean 
up the underwriting end of it as soon as we can get completed appli¬ 
cations from the Shipping Board and the United States Railroad 
Administration and some others who have refused to send in their 
applications, in which case we are going to turn the matter over to 
the Department of Justice for settlement. We have a lien upon the 
vessel of any owner who has not made his application, with $1,000 
fine for each failure. We have practically ceased to underwrite, and 


MARINE INSURANCE. 


41 


that end is practically cleaned up, and we are only waiting for two 
things, the Shipping Board and the Railroad Administration, and 
three other people in the marine section who have not given us final, 
closing figures. We are writing those up now without waiting for 
that. As to the loss end of it, it is hard to tell, because they are 
mostly foreign claims, and we have to be very careful to see that we 
are making our payment to the persons legally entitled to it. 

For example, we have a claim to-day in which the Ionian Bank, 
of Greece, and the Metal & Mechanics Bank, of New York, and a 
Mr. Pappadan, of Syria, have all filed a claim for the same money. 
We also have a claim where Mr. Jandola, of Egypt, and the Milton 
Piano Co., of New York, are having a dispute as to who should 
receive the money, and Mr. Cocarro, of New York, has also filed a 
claim that he owns the goods. We think they belong to Mr. Jandola, 
of Egypt, and we will not pay the claim until we hear from him. 
The settlement of those claims depend upon various factors of that 
nature. We only pay the claim to the person who actually owned 
the goods at the time of the loss, and we are cleaning up the work 
just as rapidly as possible. 

Mr. Edmonds. There is no legislation which it is necessary for us 
to repeal in order for you to clean up your work, because the act 
carries that authority. 

Mr. Cholmeley-Jones. Yes, sir. 

Mr. Edmonds. And you have virtually gone out of business be¬ 
cause there is no war risk any more s 

Mr. Cholmeley-Jones, That is true. 

Mr. Edmonds. There is no call on you on account of these floating 
mines or anything of that sort? 

Mr. Cholmeley-Jones. No, sir; it is all being closed right up and 
we are completing our records. The private companies are still 
writing a war-risk policy but not the Government. For instance, the 
marine companies will possibly charge an extra premium for the 
risk of bumping into a mine as compared with the usual dangers at 
sea. 

Mr. Edmonds. But it is the intention of your department to clean 
up the work and get out of the business as fast as it can be.done? 

Mr. Cholmeley-Jones. Yes.. 

Mr. Edmonds. You do not want to go along any further? 

Mr. Cholmeley-Jones. Our particular job which Congress in¬ 
structed us to complete has been completed, and unless you had some 
other plans, why, we had no opinion. Since January 4 there has 
been no further risk taken. 

Mr. Lehlbacli. We have a call over to the House on the point of 
no quorum, and I think we have about finished everything that we 
can get from these gentlemen at this time, and we might as well 
adjourn. 

Mr. Edmonds. Yes, unless they have some suggestion to offer. 

Mr. Cholmeley-Jones. I think this, Mr. Edmonds, that as you 
progress in your meeting you will have certain things you might 
wish to ask of the bureau, by reason of our experience; for instance, 
in connection with certain proposals which you have under con¬ 
sideration to make to Congress, you might care to inquire as to the 
facilities that the bureau has had or is able to create to provide for 
such program as you may present. And I think we could be of more 


42 


MARINE INSURANCE. 


help in answering some of your specific inquiries because we have 
a fund of information. 

Mr. Edmonds I think that is quite true. 

Mr. Cholmeley-Jones. It is hard for us to initiate. 

Mr. Edmonds. And it is hard for us until we know more about it. 

Mr. Cholmeley-Jones. It is at this time. 

Mr. Edmonds. Before we get a little deeper into the subject. 

Mr. Cholmeley-Jones. Yes; but we are ready at your notice and 
have a fund of information and we have opinions; but it would not 
be well to express opinions until later, I think. 

Mr. Edmonds. You would not suggest any repeal of this act, 
would you? I am not quite sure, but it does not seem to be limited 
to this war; it seems to be general legislation. 

Mr. Hedge. This must terminate within three years after the ter¬ 
mination of the war by proclamation of the President. That is pro¬ 
vided for in the act. 

Mr. Edmonds. It does not say what war. 

Mr. Peters. It says: 

That the President is authorized whenever in his judgment the necessity 
of further war insurance by the United States shall have ceased to exist to 
suspend the operation of the act, in so far as it authorizes insurance by the 
United States against loss or damage by risks of war, which suspension shall 
be made, in any event, within four years after the passage of this act, but 
shall not affect any insurance outstanding at the time or any claims pending 
adjustment. 

That is the act of June 12, 1917. When you passed the act of 
October 7, creating the Marine and Seamen’s Division, that merely 
referred to sections 2, 7, and 9. This section 9 I have just read 
ends up: 

For the purpose of the final adjustment of any such outstanding insurance 
or claims the Bureau of War Risk Insurance may, in the discretion of the 
President, be continued in existence a further period not exceeding three years. 

Mr. Edmonds. In other words, it would still be an act, and at any 
time within three years it could be revived again ? 

Mr. Cholmeley-Jones. Oh, yes. 

Mr. Chindblom. Is that three years after the termination of the 
war ? 

Mr. Cholmeley-Jones. After the President’s proclamation. 

Mr. Edmonds. The act of July 11, 1918- 

Mr. Peters. Section 9 of the act of June 12, 1917, if you have it 
there, at the time you created the seamen’s section. The original 
act of September 2, 1914, provided for one year’s existence only. 

Mr. Hedge. As I understand the act, this bureau ran for four 
years only unless it was terminated prior to that; then it continued 
for three years, once it was terminated, for winding up outstanding 
claims, etc.? B 

Mr. Edmonds. It says “ may at the discretion of the President be 
continued in existence for a further period not exceeding three 
years.” 

Mr. Peters. Yes; for the purpose of final adjustment of any such 
outstanding insurance or claims. 

Mr. Chindblom. And from what time is that three years? 

Mr. Hedge. That is three years after it is suspended as provided in 
the preceding sentence. The President suspends the bureau, and 
then it continues for three years. 



MARINE INSURANCE. 


43 


Mr. Edmonds. That was afterwards amended by the act of July 
11, 1918—section 9 of the war-risk insurance is hereby amended as 
follows. So that is the final say so, which gives the President three 
years to clean up, and he must close out the business six months after 
the end of the war or he may stop it at any time if he chooses. That 
is the act—public, 195. That supersedes everything else. 

I do not think that we can do very much this afternoon until we 
get some more data to go on, and we will be very glad indeed to get 
your data. 

Mr. Cholmeley-Jones. That is my opinion. 

Mr. Edmonds. And as your final act, we would like to have a little 
summary of the financial status and balance sheet, so that we can 
put it in our hearing here. 

Mr. Cholmeley-Jones. I would be very glad to send you that 
immediately. 

Mr. Hedge. Other than as a member of the advisory board, and 
speaking as a underwriter, may I ask if this committee would like 
the American underwriters to make any suggestions or bring for¬ 
ward any information for their consideration? 

Mr. Lehlbach. Yes. I was about to suggest Mr. Hedge, as an 
underwriter rather than as an official under the Government, could 
give valuable suggestions and testimony to the committee based on 
his experience, and I was going to ask if the committee thought it 
advisable to ask him to proceed at this time along the present line, 
or to wait until we have more facts at our disposal upon which we 
can more intelligently base questions and assimilate such advice and 
suggestions as Mr. Hedge can offer. 

Mr. Hedge. I would be delighted to make some suggestions, only 
I would rather like to do it after more careful thought. I only got 
word of this last night, when the director telephoned and asked if 
I would come down, and when it comes to a matter of new legislation, 
it is a matter of very great importance and I would like to make 
suggestions after more mature thought. 

Mr. Greene. I think so myself. 

Mr. Hedge. I made two or three notes of points as we went along. 
One item I thought would be of particular interest to you is this: 
I can count up 35 new American companies who have gone into 
marine insurance since the beginning of the war. Some of them 
are brand-new marine companies, but a great many of them are fire 
companies whose charter gave them the right to write marine in¬ 
surance, but they were not exercising that privilege. The tre¬ 
mendous demand for war-risk insurance and the big profits from 
writing marine insurance caused those companies to go into the 
marine insurance business. So that the capital and surplus of those 
new companies that have gone into marine insurance since 1914 
amount to $141,815,000. 

Mr. Lehlbach. Let me ask you, Mr. Hedge: Do you believe the 
existing insurance companies handling maritime marine insurance 
risks are to-day strong enough, all the companies organized, new 
as well as old, to absorb the risks here in the market on American 
bottoms ? 

Mr. Hedge. When you say “ companies,” you mean strictly the 
Amercian companies? 

Mr. Lehlbach. I mean American companies. 


44 


MARINE INSURANCE. 


Mr. Hedge. You do not include American branches of foreign 
companies? 

Mr. Lehlbach. No; American-capitalized companies. 

Mr Hedge. On the highest-valued boats, I should say no, not 
quite. I figured up yesterday that the market afforded prior to the 
war, to American companies, the total on one bottom, $1,300,000 as 
conservative. And I have figured as of to-day that the American 
companies would give up to $3,800,000. In case of necessity the 
American companies could carry a great deal larger risk. For in¬ 
stance, our company has assets in Boston of $11,000,000, and we 
write on an individual boat now about $25,000, and $10,000 sub¬ 
sidiary, making a total of $35,000. That we could increase in case 
of necessity, or if there was a big volume of business which would 
justify us increasing the average risk. 

Mr. Lehlbach. Is the marine insurance business in this country, 
carried on by American companies, in a position successfully and 
profitably to compete with foreign companies, so that it would be 
able to attract whatever additional capital might be necessary to 
write ships under American registry and flying the American flag? 

Mr. Hedge. Of course American companies must necessarily com¬ 
pete with foreign companies. A man exporting leather, for instance, 
from New York to London, if the rate was 25 cents in America, and 
he could buy insurance from English companies in London for 20 
cents, the purchaser would object to paying the 25-cent rate, the 
goods would be sold f. o. b. Boston consignee, plus the. market rate 
in London, or wherever the market was cheapest. And it must 
necessarily be that way. For instance, our importers, if we charged 
S. S. Purse & Co., Boston, 25 cents, and their shippers could insure 
their goods for 15 cents at the other end, they would naturally not 
be willing to pay us the 25 cents. So on these cargoes, we have an 
open, world-wide competition. When you come down to the hulls, 
the hulls are divided, a large proportion in this country and a con¬ 
stantly increasing proportion in this country, and the balance in 
London. The rate paid to the London underwriters and the rate paid 
to the New York and Boston underwriters is absolutely the same. 
But the American underwriters are under heavier expense, because 
they have their main office and branch offices, and they have to pay 
larger salaries to their agents. 

Mr. Lehlbach. Are the American underwriters making any 
money ? 

Mr. Hedge. Marine? 

Mr. Lehlbach. Yes. 

Mr. Hedge. I do not believe on the strictly marine business the 
American underwriters made a dollar last year. I can not answer 
definitely, because the war-risk premiums and marine premiums 
were not kept separate. The individual companies may have kept 
them separate, but they are not public. Of course, in normal times 
you do not have this war-risk premium and you do not have that 
profit. That profit is a great deal larger than we had anv reason to 
expect. Our Navy and the English Navy curbed the submarine far 
better than we expected, and that is where that profit comes that the 
bureau shows. 

Mr. Edmonds. We want to hear our underwriters association Mr 
Rose is president of that, isn’t he ? 


MARINE INSURANCE. 


45 


Mr. Hedge. He is president of one association. 

Mr. Edmonds. Yes, he is president of one association. We want 
to hear them all, and w T e also want to hear from the American 
Bureau and get some comparison between the action of the American 
Bureau and Lloyds. 

Mr. Hedge. Yes, that is something I think you are particularly 
interested in. That came up this morning. 

Mr. Edmonds. Now, we want to go on with these hearings until 
we complete that whole general line of thought and see what is neces¬ 
sary to be done. Naturally I am opposed to Government ownership, 
myself, and I do not want to do any more insurance than it necessary 
to do. At the same time, if there is an advantage in the foreign 
trade to have the Shipping Board insure these cargoes temporarily, 
if that is necessary, or anything of that kind, I am willing to have 
the Government go to any limit to help the Shipping Board. 

Mr. Hedge. I think that is the Shipping Board’s problem, pure and 
simple. 

Mr. Edmonds. But we can stop that if we do not want them to 
do it. 

Mr. Hedge. Yes. 

Mr. Edmonds. And those are things we are studying out. We do 
not want your bureau to do any more insurance than you have to; 
and, at the same time, if it is advantage to American shipping to 
conduct this business, we are perfectly willing to go on with it. But 
we want to know if it is an advantage before we do that. 

Mr. Hedge. Would it be of assistance to your committee and 
would you welcome it if I acted as spokesman for your committee at 
the American Underwriters’ meeting, and asked them to draw up 
their recommendations, and the reasons therefor, so as to put before 
you the recommendations of the American companies? 

Mr. Lehlbach. We would appreciate that, Mr. Hedge. 

Mr. Hedge. I would be very glad to do that. 

Mr. Lehlbach. And we would further appreciate this if you 
would write to the secretary of this committee or myself or anyone— 
it does not make any difference—giving your suggestions as to legis¬ 
lation, and so forth—and we expect to hear you—and also offering 
any suggestions you might have as to who should be invited to pre¬ 
sent views to this committee, particularly representing the under¬ 
writing companies and the other interests that have a knowledge and 
experience and are interested both in shipping and the insurance of 
it—the writing of the insurance and the getting of the insurance. 

Mr. Edmonds. We would be glad to have their views and we want 
to have them come down here and go over what puzzles us. We 
want to make this hearing the most complete hearing on marine 
insurance that has ever been made and make it as an individual 
marine insurance proposition. And it is up to you folks, who are 
experts in the business, to come in here and tell us, because when 
we finish, if we are going to put out any legislation on this thing 
we want to put it out for all time, so that there can never be any 
complaint come to this committee that our laws are not right. We 
want to finish this marine legislation if it takes six months to do it, 
and we are willing to devote that time to it and we have the 
authority. 


46 


MARINE INSURANCE. 


Mr. Hedge. The marine underwriters appreciate that suggestion 
very much, and I think they will be of assistance and can answer 
your questions directly, perhaps better than anyone else, 

I noticed this morning, also on the question of deviation, you said 
there had been complaints. I know four fleets in Boston, all placed 
on the 4 per cent rate, confined to the seaboard and River Plata, 
limited. If they want the privilege of the Pacific coast via Panama 
Canal they pay 4J per cent. If they want world-wide they pay 5 
per cent. If one of that fleet pays the 4 per cent rate and after¬ 
wards decides they want to send the vessel over to London, they have 
to pay an additional rate of deviation. He has a reduced rate be¬ 
cause he has restricted navigation. 

Mr. Edmonds. We want to get you folks a policy just the same 
as they have in the other countries. 

Mr. Hedge. I do not think you need worry about the policy at all. 
We would not want a standard policy. One man requires certain 
conditions, and another man different conditions. One wants oil, 
another wants leakage cover, and another won’t want leakage cover. 
I think you won’t want to inquire about policies, because you will 
get into very complex difficulties if you do, and I do not think there 
is any legislation necessary. In fact, you might have a boomerang 
and hurt the American merchant, and you had better let him do 
the best he can. 

Mr. Edmonds. You might say in your report how much the insur¬ 
ance on foreign ships would be. 

Mr. Cholmeley-Jones. None. 

Mr. Hedge, We are only authorized to write American hulls. 

Mr. Edmonds. No; you were authorized to write the Allies’ 
ships, too. 

Mr. Peters. When chartered by the Shipping Board on the 
cargoes. 

Mr. Edmonds. You might say how much you did on foreign 
ships—so much on American ships and so much on foreign ships— 
in making up the report. Any time in the next week or 10 days 
will do. 

Mr. Cholmeley-Jones. I will have that for you to-morrow. 

Mr. Peters. We have 30 different classes. 

Mr. Edmonds. I think we would like to hear what the result of 
the committee’s work is on that. 

Mr. Hedge. Will your hearing be on any definite dates? 

Mr. Edmonds. No, I do not think so; but we want to go on right 
away, and when you have your underwriters’ association ready to 
come down, then we can call down the rest of these people and have 
them all down here and take a couple of days to it and go right 
through with it. 

Mr. Hedge. How soon would >ou want them to come down? 

Mr. Edmonds. I should say next week. 

Mr. Hedge. About the middle of next week? 

Mr. Edmonds. About the middle of next week. You can notify 
the chairman when you are ready. J 

(The hearing was thereupon adjourned subject to the call of the 
chairman.) 


MARINE INSURANCE. 


Subcommittee of Committee on the 

Merchant Marine and Fisheries, 

House of Representatives, 

Washington , D. C., July 16 , 1919. 

The subcommittee met at 10.30 o’clock a. m., Hon. Frederick H. 
Lehlbach presiding. 

Mr. Lehlbach. At our former hearing, when the Director of the 
Bureau of War Risk Insurance, Mr. Cholmeley-Jones, was before 
the committee, a request was made that lie furnish us with certain 
data. I am in receipt of a letter from the director, under date of 
July 12, transmitting a detailed statement of the finances and opera¬ 
tion of the Marine and Seamen’s Division, which will be inserted in 
the hearing at this point. 

I am also in receipt of a list of losses for which the insurance fund 
of the United States Shipping Board Emergency Fleet Corporation 
is liable, from Mr. B. Iv. Ogden, Acting Director of Insurance, 
United States Shipping Board Emergency Fleet Corporation, which 
will follow the report of Mr. Cholmeley-Jones in this record. 


Treasury Department, 

Bureau of War Risk Insurance, 

Washington , July 12, 1919. 


Hon. Frederick R. Lehlbach, 

Chairman Committee on Merchant Marine, 

House of Representatives, Washington, D. C. 


Dear Mr, Lehlbach : In accordance with your request at the close of the 
hearing held by the subcommittee on miscellaneous business of the Committee on 
Merchant Marine, Wednesday, July 9, 1919, I herewith submit for your examina¬ 
tion and that of the other members of the committee, a detailed statement of the 
finances and operation of the marine and seamen’s division. 

Very truly, yours, 

R. G. Cholmeley-Jones, 

Director. 


Treasury Department, 

Bureau of War Risk Insurance, 

Washington, July 10, 1919. 

The act creating the Bureau of War Risk Insurance was approved Septem¬ 
ber 2, 1914. The bureau was organized September 3, 1914. The purpose was to 
issue war risk insurance on hulls, cargoes, and freight in order to provide ade¬ 
quate protection to American shipping. It was found that private companies 
could not at that time issue insurance in amounts large enough to give the pro¬ 
tection required. 

The first policy was issued on September 28, 1914, and from that date until 
July 10, 1919, 27,215 contracts have been issued representing net insurance in 
the sum of $2,067,112,116. The net premiums received on this insurance amount 

47 




48 


MARINE INSURANCE. 


to $46,746,409.33. The following taxation shows the net amount of insurance 
and net premiums written and received, divided into periods: 



Net insurance. 

Net premium. 


*305,442,604 
696,094,921 
983,377,891 
82,196,700 

$5,231,070. 78 
31,803,653.18 
9,459,013. 62 
252,671. 75 

Apr (5 1917 to Dec 31 1917 . 

Jap 1 ’ 1918 to Dec 31 1918 . 

Tan i ioio Jiilv in loio ... 


2.067,112,116 

46,746,409. 33 


The period from January 1, 1919, to July 10, 1919, has been one during which 
great sums of insurance have been canceled and large return premiums made. 
Therefore the amount of net insurance and premiums is very small. These 
cancellations have been due to readjustments necessary to complete pending 
and otherwise uncompleted applications. No new risks were accepted after 
January 4, 1919. 

The total losses paid and estimated (and we are estimating all losses of 
which we have record) are $29,940,795.59. This sum is in excess of what will 
be the actual and final figure, for the reason that where we have an unsettled 
claim we are carrying an estimated figure at the maximum amount, and many 
of these claims will be settled for an amount very much less than the amount 
held pending. For example, we are holding estimated $400,000 on the hull of 
the steamship Neiv York. This is a partial loss and will result in a loss not in 
excess of $225,000 to $250,000. On the same steamer we are holding as esti¬ 
mated five cargo claims totaling $135,675. We have sufficient evidence Sub¬ 
mitted at the present time to show that these cargo losses will be settled for 
less than $35,000. We therefore are carrying possibly $250,675 more estimated 
than will be actually paid on this particular steamer and cargo. I herewith 
append as Exhibit A a statement of losses of the marine section, divided into 
hull, cargo, and freight; and I herewith append as Exhibit B a subdivision of 
this loss sheet showing the total and partial damage losses, with the number 
of claims and the amount paid and pending under each of the hull, cargo, and 
freight losses. The losses reported for the period corresponding to that in which 
the insurance was written are as follows: 

Sept. 2, 1914, to Apr. 5, 1917_$2, 719, 462. 63 

Apr. 6, 1917, to Dec. 31, 1917_ 21, 044, 658. 24 

Jan. 1, 1918, to Dec. 31, 1918_ 6,176, 674. 72 

Jan. 1, 1919, to July 10, 1919_ 


29, 940, 795. 59 

The total expenses from September 2, 1914, to May 19, 1919, were $174,845.08. 
Since May 19 to date our expenses have been very light, and our estimated 
profits used in figures liertofore noted from the operation of this section are 
$16,630,768.66. These expenses do not include charge for rent, but do include 
charge for furniture, electric lighting, ordinary supplies, telegrams, cables, and 
all clerical expenses. 

In determining the value of a hull upon which we were writing insurance, 
the dead-weiglit tonnage, the class of construction, and the age of the vessel 
were carefully considered, and the value determined on a basis of certain value 
per ton, but until July 21, 1917, we placed no limit upon the amount of insur¬ 
ance which a shipper might procure upon cargo except that he must procure a 
corresponding amount of marine insurance. It is therefore a fact that many 
cargoes insured up to that date were greatly overvalued. On and after that 
date we limited the amount of insurance on cargo, not only to the amount of 
marine insurance carried, but to invoice, including freight, insurance, and other 
charges when prepaid, plus 10 per cent. 

The large-1 hull loss was that of the John D. Archhold , upon which we car¬ 
ried a risk of $2,200,000 and paid a total loss in that sum. The largest loss 
by reason of the sinking of any one vessel was that of the Argonaut, on which 
steamer we carried $516,500 on hull and $3,950,836 on cargo, and paid a total 
loss in the sum of $4,454,095.15. 

The largest amount of risk on any one steamer of which we have available 
record, is on the steamer Kermanshaw on a voyage from New Orleans to Havre 





















MARINE INSURANCE. 


49 


on or about May 13, 1916, on which vessel, hull and cargo we carried a total 
risk of $8,274,023. The amount at risk on many other transatlantic voyages 
ran up into the millions, three to six millions being frequent risks. 

We also had millions at risk on various vessels to and from the west and 
east coasts of South America. Most of these vessels were of foreign owner¬ 
ship and our insurance in such cases was on the cargo. 

Our policies were written to cover in the name of the a sured named “ for 
account of whom it may concern.” Therefore we have no method of deter¬ 
mining exactly who was the party at interest on policies except those upon 
which we paid a loss. It is a fact that during the first part of the operation 
of this section we issued policies in the names of brokers, forwarding agents 
and shipping agents. Later we tried to prevail upon the parties applying 
for insurance to disclose the names of the parties intere ted, hut this was not 
mandatory and was not insisted upon to the extent of having this desire 
carried out. It is therefore impossible to determine exactly what proportion 
of the cargo carried was foreign owned and what proportion American owned. 

On losses amounting to between fourteen and fifteen million an examination 
has shown that at the time of loss the ownership was 32 per cent American 
and 68 per cent foreign. The approximate total amount of American-owned 
cargo was 53.45 per cent, valued at $449,157,770.95; the approximate total 
amount of foreign-owned cargo was 46.55 per cent, valued at $391,174,822.05, 
making a total of $840,332,593. 

Util the latter part of the operation of this division of the bureau we con¬ 
fined our hull insurance to American-owned vessels only; subsequently we 
wrote insurance on foreign-owned vessels when the vessels themselves were 
requisitioned by the United States Shipping Board. No division has been 
kept as to American or foreign-owned vessels in so far as insurance and pre¬ 
miums are concerned, hut out of a total of $1,203,890,723 insurance on hulls, 
and $23,970,980.82 premiums on same, it is safe to assume that 99 per cent at 
least was American owned. 

The seamen’s section of the Marine and Seamen’s Division commenced busi-. 
ness on June 26, 1917. This section issued policies to insure against loss of life, 
injury under certain specified conditions, and detention, due to risks of war, 
The basis of the amount of insurance was 12 times the monthly wages, including 
bonuses, of the insured seamen as shown by the shipping articles, with a mini¬ 
mum, however, of $1,500 for each man so insured, and a maximum of $5,000. 
While the insurance in the marine section on hulls, cargoes, and freight was 
voluntary, the insurance in the seamen’s section was, to those taking certain 
voyages prescribed by the Secretary of the Treasury, mandatory, although it 
need not necessarily he taken with the Government. We, however, insisted upon 
examination of a policy if the assured or owner of the vessel took his insurance 
out with some other company than the bureau, and inasmuch as no private 
company provides for insurance to cover the detention hazard we have in every 
case ruled that the owner of the vessel or charterer must procure this insur¬ 
ance with the bureau. The detention feature is to cover the loss of wages, 
actual or theoretical, due to the fact that the seaman has been captured by an 
enemy. 

From June 26, 1917, to July 10, 1919, this section has issued 6,150 policies, 
covering 192,894 lives. Inasmuch, however, as a man might he insured several 
times according to the number of voyages he took, this figure does not represent 
that number of seamen ; the actual number of seamen insured would be consid¬ 
erably less. The total net amount of insurance issued in this section is $322,- 
429,408.54, and the net premiums received amount to $842,348.17, the total 
acknowledged losses amounting to $302,967.81. We have also claims amounting 
to $7,110 which we have not adjusted, hut upon which we are awaiting proof 
before taking final action. These, together with our operating expenses of 
$66,128.70 and unearned premiums amounting to $440.60, leave a net balance of 
profits from this section of $465,701.06, and I herewith append as Exhibit G a 
condensed statement of this section. An examination of this statement will 
show that while our rates on schooners and auxiliaries (we designate schooners 
as sailers in this statement) were very much higher than that applicable to 
steamers, all of our losses have been on steamers. 

Exhibit C—1 is an analysis of the admitted and determined losses in the sum 
of $302,967.81, and shows the number of claims under each vessel named in the 
list, these claims being divided into death, detention, and injury, and further 
showing the number of claims upon which payment has been completed and the 
number of claims upon which payment is being made under a system of install- 


160770—2d 


4 



50 


MARINE INSURANCE. 


meats. The column headed “ Pending claims” shows those awaiting either 
detinite proof as to beneficiaries or more formal papers to establish tlie fact that 
the person making the claim is the person legally entitled to receive the money 

involved. 

We have no claims, in either this section or the marine section pending upon 
which we could make payment at the present time, all pending claims being 
held for more specific evidence. Page 2 of Exhibit C-l details a list of rejected 
claims, and the third column shows the reason why rejected. Legislation has 
been prepared and is being considered which, if passed, will make it possible 
for us to reconsider these rejected cases, and in most of these instances make 
payment, as they were rejected not on account of misconduct or negligence 
on' the part of tiie injured or deceased person, but because the circumstances 
resulting in death did not come within the provisions of our policy contract, 
and the proposed legislation will so modify the contract that these payments 
may possibly be made. Such obligation as the bureau has to make payment 
of these claims is not legal, but is possibly moral, and it is certainly an act of 
mercy and justice, as the dependents in most of these cases are in very poor 
circumstances. 

The act creating this bureau appropriated $5,000,000 for the operation of the 
marine section. Subsequently this appropriation was increased to $50,000,000, 
and was to apply to both the marine and seamen’s sections of the Marine and 
Seamen’s Division, and this fund and all premiums received were appropriated 
as a permanent fund out of which expenses, losses, and refunds arising out of 
the operation of this division should be paid. As a matter of fact the losses 
in both sections of this division have been paid out of the $50,000,000 appro¬ 
priation, but from a bookkeeping standpoint the underwriting profit of this 
division is 17,100,535.08, leaving the appropriation of $50,000,000 intact. 

The rates for both the marine and seamen’s sections have been made by an 
advisory board, which has for the greater part of the time consisted of Hendon 
Chubb and William N. Davey, of New York, and William R. Hedge, of Boston, 
all prominent insurance underwriters. The rates which they suggested, while 
not obligatory as to acceptance by the bureau, have been in all cases approved 
by the Secretary of the Treasury. I append herewith as Exhibit D a state¬ 
ment of the functions and organization of this division, and attached to this 
exhibit there is a schedule of rates which were used just prior to and follow¬ 
ing the signing of the armistice. 

Respectfully submitted. 

Edward M. Peters, 

Acting Commissioner Marine and Seamen's Division. 


MARINE INSURANCE. 


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i Estimated. 2 Liability denied. 8 $910.34 surveyors’fees; particular average. 4 $100 surveyors’fees. 5 $1,071 salvaging fees. 

















































































































































Statement of marine claims , as of July 10, 1919 —Continued. 


52 


MARINE INSURANCE. 


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53 


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54 


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56 


MARINE INSURANCE. 


Exhibit C. 
seamen’s section. 

Your attention is respectfully invited to the following report showing the con¬ 
dition of the seamen’s section of the Bureau of War Bisk Insurance from June 
26, 1917, to and including July 10, 1919: 



Steamers. 

Saileis and 
auxiliaries. 

Total. 

Number nf policies. ._. 

4,711 

1,439 

6,150 

Number of individuals. 

182,377 

10,517 

192,894 



"Famine's nf complements.. 

18,571,076. 71 
326,164,898,42 
21,308,092.32 
302,856,806.10 
778,217.35 
74,223.20 
703,994.15 

1,084,082. 86 
18,021,869.32 

19,655,159. 57 

Gross amount insurance. 

344,186,767. 74 

Canceled insurance. 

449,266. 88 
17,572,602. 44 
154,802.01 

21,757,359.20 
322,429,408. 54 

Net, amount of insurance. 

Gross premiums. 

933,019.36 

Return premiums. 

16,447. 99 
138,354.02 

90,671.19 

Total net premiums. 

812,348.17 

Insurance at risk. 

95,200.00 
440. 60 

95,200.00 
440. 60 

Unearned premiums. 


Losses: 

Death.. . 

288, 756. 00 


288,746.00 
7,041.48 
7,180. 33 
23,400. 00 
7,200.00 

Detention (estimated"). 

7,041.48 

7,180.33 
23,400.00 

7,200. 00 
124, 724. 78 


Injuries (estimated). 


Unlocated beneficiaries. 


Beneficiaries in enemv territory. 


Total paid. 


124,724. 78 

Installments coming due on adjusted claims. 

41,323.03 
136,920.00 
302,967. 81 
7,110.00 


41,232.03 

Unadjusted claims. 


136.920.00 
302,967.81 
7,110.00 

Total determined losses. 


Total claims awaiting proof. 





Fi n and a 1 statem ent. 


Total net premiums_ 

Total determined losses 
Expenses (estimated 
Balance_ 

Balance _ 


$S42, 348.17 


302, 967. 81 
66,128. 70 
473, 251. 66 


473, 251. 66 


Unearned premiums_ 440. 60 

Claims awaiting proof_ 7,110. 00 

Net balance- 465, 701. 06 


Respectfully submitted. 


Edward M. Peters, 

Acting Commissioner Marine and Seamen's Division. 

























































Exhibit C-l .—Loss report, seamen 1 s section. 


MARINE INSURANCE 


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Exhibit C-l. —Loss report, seamen’s section —Continued. 


58 


MARINE INSURANCE. 



Total non war risk cases (19).$31,7S5.00 

Total disallowed claims (9).-. 18,330.00 

Total questionable losses (4). 7,110.00 









































































































































































































































































































































































MARINE INSURANCE. 


59 


Exhibit I). 

Marine and Seamen’s Division. 

MARINE SECTION. 


A statement of the functions and organization of this division is largely a 
matter of history, as the division is in process of liquidation, and the following, 
although written in the present tense, is more correctly descriptive of the past 
than of present conditions. 

The act creating the Bureau of War Risk Insurance, signed September 2, 
1914, contemplated only the marine section, which is therefore the oldest sec¬ 
tion in the bureau. 

This section commenced business in one room in the basement of the Treasury 
Building with a total office force of live, including executives. It has never 
issued marine insurance contracts, which form of insurance is concerned chieliy 
with losses occasioned by “ perils of the sea,” barratry, thefts, jettison, etc. Its 
function has been to issue war-risk insurance; that is, to indemnify vessel 
and cargo owners against losses occasioned as the result of war conditions or 
actual hostile action. 

The original intent was not to eliminate private-company insurance but 
rather to stabilize rates and provide a market for such excess insurance as 
could not be procured in the open market. In practice it soon resolved itself 
into a condition where those procuring Government insurance at all quickly 
came to depend entirely or primarily upon Government insurance. 

As first authorized the insurance was limited to American vessels, their 
freight and cargoes. When vessels were transferred to the American flag from 
a foreign flag the following clause was incorporated in the policy: 

“ Warranted that the vessel is of American ownership and free from all 
claims for loss, damage, or expense consequent upon seizure and/or detention 
owing to or on account of any foreign ownership, entire or partial, of the vessel, 
or the corporation owning her, either before or after the change of flag.” 

On July II, 1918, a bill was passed in Congress amending the Bureau of War 
Risk Insurance act, so that when it appeared to the Secretary of the Treasury 
that vessels of foreign friendly flags or their masters, officers, or crews, or ship¬ 
pers or importers in such vessels, were unable to secure adequate war-risk insur¬ 
ance on reasonable terms, the Bureau of War Risk Insurance, with the approval 
of the Secretary, could provide such insurance when the vessels were chartered 
or operated by the United States Shipping Board or its agent, or chartered by 
any person a citizen of the United States; and the cargoes to be shipped in such 
vessels of foreign friendly flags whether or not they were so chartered. Such 
insurance was authorized only when the United States Shipping Board or its 
agent operated the vessel or the charterers were, by the terms of the charter 
party or contract with the vessel owners, required to assume the war risk or pro¬ 
vide insurance protecting vessel owners against war risk during the term of the 
charter or hire of the vessel. 

On policies for such’ insurance the following clause was incorporated: 

“ Warranted that the United States Shipping Board is released of and free 
from any and all liability for any loss or damage during the voyage described 
herein, which may occur and be due to the operation of a war risk, as defined 
in United States Shipping Board requisition charter.” 

Departments in the marine section are established for the following purposes: 

1. Answering requests for quotations. 

2. Checking applications. 

3. Preparing policies and letters of transmittal. 

4. Checking policies. 

5. Handling and recording remittances and refunds. 

6. Filing. 

7. Keeping policy register and vessel record. 

8. Adjustment of losses. 

Requests for rate quotations usually come in by telegraph and are answered 
in similar manner. The quotation is made on a definite assured, vessel and/or 
cargo, voyage and amount, and must be accepted, and written application ac¬ 
companied by certified check filed within 48 hours. Check and application may 
be filed with a local customs official, in which case the said official must tele¬ 
graph to us information to that effect within the time limit. This quotation 


60 


MARINE INSURANCE. 


holds good for a period of 15 days. If full particulars upon which the policy can 
be written are not submitted within that time, extension of binder must be 
applied for for a succeeding 15 days, and this extension will be granted subject 
to change in rate, and additional premium paid if required. 

Hull insurance is written with an agreed upon hull value stated in the 
policy contract. If the bureau refuses to issue a policy for the full amount of 
this value the resultant deficit only could he procured from private companies. 

Freight insurance was determined by the actual freight receipts. 

The total amount of cargo insurance which we permit, whether we carry all 
or part of this insurance, is limited to the amount of marine insurance carried, 
and the carrying of marine insurance is a prerequisite to our issuing war-risk 
insurance in any form in the marine section, and until June, 1917, we made no 
other limit as to the amount of cargo insurance on trans-Atlantic war-zone 
shipments. At that time we made a further limitation as to the total amount 
of cargo insurance to be carried, in the following terms: 

On merchandise to ports in Europe and Mediterranean ports in Africa. —The 
maximum amount of insurance against war risks shall not exceed the amount 
of the invoice (including freight, insurance premiums, and other charges when 
prepaid and included in the invoice) plus 10 per cent; and on merchandise 
shipped on consignment shall not exceed market value at port of shipment at 
time application for insurance is made to the Bureau of War Risk, plus freight, 
insurance premiums, and other charges when prepaid, plus 10 per cent. 

We have made no limit as to the amount of cargo insurance which may be 
carried (other than the marine insurance limit) on shipments outside of the 
above zone; so that it has been possible, if a shipper was willing to pay the 
premium and could procure the marine insurance, to insure for any amount he 
desired. 

In the early days of the bureau we limited our liability on any one vessel to 
specified amounts; but latterly we have written all the cargo insurance applied 
for regardless of its amount, the class of vessel, or the voyage involved. 

Since April, 1917, we have insured no sailing vessels or cargoes entering the 
so-called war zones. Our rate for auxiliary vessels has been one and one-half 
times our rate for steamers, and our sailing-vessel rate has been twice the 
steamer rate, except when the voyage was to South Africa or the Far East; 
then the sailing-vessel rate was two and one-half times the steamer rate. Rates 
in effect just prior to and following the armistice are appended as part of this 
report. 

The work of the loss department of the marine section has been the most 
detailed and technical in its requirements of any department in the Marine and 
Seamen’s Division. Claims have been settled and are in process of adjustment 
for hull, freight, cargo, personal effects, and crew’s outfits, for all of which we 
require definite proofs of loss and interest. Adjustment of all except cargo 
claims is a comparatively simple process, and it is with cargo claims we have 
greatest difficulty. The bureau must make settlement with the actual party at 
interest or must have an order in proper form from said pary authorizing and 
directing payment to a third party, and we must have in our possession all 
documents proving loss and interest, or in the event of loss of certain papers 
or lack of indorsement of bills of lading or policies we require indemnities or 
surety bonds. The Consular Bureau of the State Department is of great as¬ 
sistance in connection with matters to be taken up through United States con¬ 
suls. Up to the time of consolidation of the two sections the adjustment of 
losses was carried on independently of former section chiefs. 

The work of this section has been under the jurisdiction of an advisory board 
consisting of Hendon Chubb and William N. Davey, both of New York City, 
and William R. Hedge, of Boston. This board has prescribed the policy forms 
and contracts, authorized rates, and reviewed and passed upon the work of the 
loss department. 

The first policy issued by the marine section was upon the Standard Oil 
vessel John D. Arclihold, in the sum of $150,000, with an agreed-upon value of 
$770,000. This vessel was subsequently torpedoed June 10, 1917, and at that 
time was insured by the bureau under policy No. 4287 in the sum of $2,200,000 
with an agreed-upon value of $2,200,000, and we paid a total loss under this 
contract in the sum of $2,200,000 under date of August 2, 1917. 

Rates for insurance by this section were withdrawn by the Secretary of the 
Treasury on January 4, 1919, and we are now engaged in writing up orders 
pending prior to that date and revising amounts and adjusting premiums on 


MARINE INSURANCE. 


61 


existing policies. Our principal outstanding and pending order is for the United 
States Railroad Administration. We insured its vessels and cargoes engaged in 
the coastwise trade for the period from October 16, 1918, to November 15, 1918, 
inclusive. The issuance of the policies is held up pendng the determination of 
the exact and proper amount of insurance. In this case we did not follow the 
usual rule of requiring deposit of certified check, as it is another Government 
department. The amount of insurance involved in this order will approximate 
$100,000,000 or more, and the premium will amount to several hundreds of 
thousands of dollars, which will be all profit, as no losses were incurred. 

We have the following outstanding losses: Seventy-five claims at an esti¬ 
mated amount of $1,723,423.36. 

Over $1,000,000 of this sum represents estimated damage to hulls, claims for 
which have not yet been presented. A very few cargo claims have not been 
presented, and those pending are held for further proof of interest. 

The summary of the business of the marine section to date, is as follows: 


Policies issued Sept. 2, 1914, to Feb. 28, 1919_ 27,072 

Total amount insured-$1,988,840,305.00 

Premium on above_ 46, 492, 800. 32 

Losses paid up to and including Feb. 28, 1919_ 28,138, 015. 59 

Losses pending, including outstanding, estimated_ 1, 723, 423. 36 


29, 861, 438. 95 

Expenses estimated up to and including Feb. 28, 1919_ 171. 432. 60 

Estimated profits_ 16, 459, 928. 77 


SEAMEN S SECTION. 


The act authorizing the Bureau of War Risk Insurance was amended on .Tune 
26, 1917, to insure the masters, officers, and crews of American merchant ves¬ 
sels, to whose complements it was then limited, and the seamen’s section of the 
Marine and Seamen’s Division was created as of that date. It issued its first 
policy to the Garland Steamship Corporation on July 3, 1917. 

Note that we insure the complements of merchant vessels and not public ves¬ 
sels. It has been ruled that vessels in the service of the War or Navy Depart¬ 
ments are public vessels. The complements of such public vessels, when en¬ 
rolled, enlisted, or drafted into active service in the military or naval forces 
of the United States, are under the jurisdiction of the Military and Naval 
Division of the Bureau. 

The civilian complements of such public vessels are entitled to the benefits 
of the act entitled “An act to provide compensation for employees of the United 
States suffering injuries while in the performance of their duties, and for other 
purposes,” approved September 7, 1916, which is under the jurisdiction of the 
United States Employee’s Compensation Commission, Union Trust Co. Build¬ 
ing, Fifteenth and H Streets NW. 

The complements of vessels requisitioned by the United States Shipping 
Board, chartered to the United States Emergency Fleet Corporation, are in¬ 
sured by this section when traversing the prescribed war zone, and when not 
of the Army and Navy personnel. When such requisitioned ships are chartered 
to the Army or Navy they automatically become “ public ships,” and the civilian 
complements, if any, come under the juridiction of the L nited States Em¬ 
ployee’s Compensation Commission. _ 

The complements of vessels chartered by the Shipping Board are insured by 
the seamen’s section when the vessel is returned to the owner for operation 
under “Time” or “Bare boat” form of charter, provided the vessel does not 
lose its status as a merchant vessel or when under a Time chaitei public 
Government form the vessel is chartered to a foreign government but operated 
by the Emergency Fleet Corporation. 

’The seamen’s section does not insure the property or personal effects of the 



caused bv injury from act - .— — . , .„ , 

or theoretical resulting from detention by the enemy. We also pay specified 
percentage of’the “ principal sum” for loss of hands, feet, arms, legs, sight, or 














62 


MARINE INSURANCE. 


hearing due to act of war. The principal sum is, and must in every casej)e, 
twelve times the monthly rate of compensation, limited by a minimum of $l,o00 
and a maximum of $5,000. The insurance is mandatory. The premium is not 
paid by the complement, but by the person or corporation responsible for the 

complement. „ , 

The insurance in event of death is payable to the estate of the deceased for 

distribution to his,family, and is free from debt. 

The payments for injury are made to the injured person. The insured person 
may designate some dependent to whom payment is to be made in the event of 
his* detention. The right of the designated beneficiary is not vested and may 
be revoked or none need be appointed. 

The act provides this form of insurance for complements of American ^as¬ 
sets engaged in such trades as may be from time to time prescribed by the Sec¬ 
retary of the Treasury, and on July 11, 191S, was enlarged in its scope to include 
insurance on complements of vessels of foreign friendly flags. Under date of 
June 28. 1918, a circular was issued by the Secretary of the Treasury author¬ 
izing insurance on complements of vessels of American registry (except in the 
case of fishing vessels while on trips for the purpose of catching fish) while 
proceeding—• 

“ From United States ports situated on the Atlantic or Gulf of Mexico coasts 
to foreign ports and vice versa; 

“ From United States ports situated on the Atlantic or Gulf of Mexico coasts 
to other United States ports where the voyage includes not less than one hun¬ 
dred miles of ocean navigation and vice versa.” 

The mandatory feature of the act was repealed on December 20, 1918, and 
all rates withdrawn by order of the Secretary of the Treasury on January 4, 
1919. 

The force of the section is divided into departments for the following pur¬ 
poses : 

1. Receiving and checking reports from collectors of customs and consuls 
for the purpose of determining whether complements of all vessels are in¬ 
sured ; 

2. Receiving, checking, recording, and acknowledging provisional applica¬ 
tions ; 

3. Receiving, recording, and checking final and supplementary applications; 

4. Repairing and issuing policies and letters of transmittal; 

5. Checking policies and letters of transmittal; 

6. Handling and recording remittances and refunds; 

7. Filing; 

8. Keeping policy register and record of seamen’s policies; 

9. Loss adjusting. 

The provisional application is essentially a notice that the insurance is ap¬ 
plied for. The policy is written up upon the receipt of the final application 
which lists the complement and wages, and is accompanied by check for 
premium. When subsequent chances in the complement occur a supplementary 
application is required. 

Customs officials and American consuls cooperate with this section, filing 
weekly reports of all vessels arriving at or departing from their ports. If the 
voyage has not been insured the owners or operators of the vessel are communi¬ 
cated with and application procured. The act provides a penalty of $1,000 
for failure to apply for insurance, which penalty is waived if reasonable ex¬ 
planation for failure is submitted. 

Details of losses are secured from the owners or vessel operators, the de¬ 
ceased’s relations, the State Department, Navy Department, Shipping Board, 
and other branches of the Government, and when the necessary data has been 
secured it is submitted in a concise form of report to the claim advisory board 
of this section, which approves all claims before they are paid. These pay¬ 
ments are made in lump sum or 24 equal monthly installments, payments with¬ 
out interest, at the option of the claim advisory board. 

The section at the present time is concerned with the closing up of pending 
provisional applications, the final applications of which are delayed through 
inability on the part of the insurers to furnish details as to the complements. 
We are also investigating the condition surrounding the failure to apply for 
insurance on various voyages, and we occasionally receive application's for 
voyages just completed which commenced before the withdrawing of our rates. 
Despite the fact that no new voyages are being insured we wrote more policies 


MARINE INSURANCE. 


63 


during February, 1010, Ilian during any month of the existence of this section 
from June, 1917, to July, 1918. We have on hand unadjusted claims in this 
section amounting to ,$160,365. The settling of these claims, the beneficiaries 
of which are for the most part in foreign countries, involve many difficulties 
and are engaging the attention of the legal department of the bureau. 

Since the creation of this section to February 28, 1919, this section wrote in¬ 
surance covering 18S,373 lives in the aggregate net sum of $315,120.14. The 
total net premium amounted to $834,572.75, and the total losses and expenses, 
and unearned premiums are estimated at $403,431.45, leaving an estimated net 
profit of $431,141.30. 

An appropriation of $50,000,000 was made by Congress to pay the losses of 
this division. The losses of the division are charged to appropriation “ Losses 
on war-risk insurance of American vessels, their cargoes, etc.” Nevertheless, 
the whole division has been self-supporting and has turned in a total profit to 
the Treasury of $16,891,070.07. 

Respectfully submitted. 

Edward M. Peters, 

Acting Tftad Marine and Seamen’s Division. 

February 28, 1919. 


Notice No. 35. 

[American steamers and their approved cargoes only (excepting specie, bullion, jewelry, 
and precious stones) from any port in the United States to any port in the world 
and vice versa.] 

These rates effective as to all applications received on and after October 1, 
1918, but subject to change without notice. 


Voyage. 


Between ports on Atlantic coast, United States, and— 


Per cent. 


1 

2 

3 

4 

5 

6 

7 

8 
9 

10 

11 


12 

13 


14 

15 

16 

17 

18 

19 

20 


Atlantic United States ports. 

Gulf United States ports. 

Halifax, St. John, and St. Lawrence ports. 

Bermuda, Porto Rico, Cuba, San Domingo, United States, Virgin Islands. 

Other West Indian ports. 

Mexican Gulf ports. 

Panama. 

North coast of South America (not south of Trinidad). 

South America between Trinidad and Cape St. Roque. 

Fast coast South America below Cape St. Roque. 

Via canal: 

(a) Australasia. 

( b) India or Africa.. 

(c) West coast South America. 

Via Mage’lan: West coast South America... 

Via Cape of Good Hope: 

(a) South and East Africa. 

( b ) Far east.. 

West and south coast South Africa. 

United Kingdom.. 

France (Atlantic)... 

Italy, North Afrra, Alexandria. 

French Mediterranean... 

Greece... 

Pacific United States ports, via canal.. 


I 

I 

h 

h 

\ 

h 

x 

l 

a 

4 

3 

4 


If 

If 

n 

2 

2 

3 

3 

3 

a 


From United States gulf ports, same as from United States Atlantic ports, except— 


21 

22 

23 

24 

25 

26 

27 

28 


Cuba... 

Other West Indian ports. 

Mexico. 

Panama. 

North coast of South America (not south of Trinidad). 
South America between Trinidad and Cape St. Roque 

Fast coast South America below Cape St. Roque. 

Via canal: 

(a) Australasia. 

(b) India or Africa. 

(c) West coast Scuth America. 











































64 


MARINE INSURANCE. 


Notice No. 36. 

CHANGE OF STEAMER TIME RATES. 

The following rates will be effective as to all applications received on and 
after October 1, 1918, but subject to change without notice: 

For 30-day periods. 

Per cent. 


Confined to United States Pacific coast- ^ 

Confined to United States Atlantic and Gulf coasts- $ 

Confined to the Western Hemisphere--1 

Confined to the Atlantic and Gulf coasts of the United States, ports on the 
Gulf of Mexico and Caribbean Sea, with privilege of West Indies not be¬ 
yond Island of Trinidad- f 

Confined to the Gulf coasts of the United States and Mexico, ports on the 
Caribbean Sea, with privilege of West Indies not beyond Island of 
Trinidad _ i 


Notice No. 37. 


[American steamers and their approved cargoes only (excepting specie, bullion, jewelry, 
and precious stone§) from any port in the United States to any port in the world, 
and vice versa.] 

These rates effective as to all applications received on and after November 11, 
1918, but subject to change without notice. 


Voyage. 


1 

2 

3 

4 

5 

6 

7 

8 
9 

10 

11 


12 

13 


14 

15 

16 

17 

18 

19 

20 


21 

22 

23 

24 

25 

26 

27 

28 


Between ports on Atlantic coast, United States, and— 


Atlantic United States ports. 

Gulf United States ports. 

Halifax, St. John, and St. Lawrence ports. 

Bermuda, Porto Rico, Cuba, San Domingo, United States Virgin Islands 

Other West Indian ports. 

Mexican Gulf ports. 

Panama. 

North coast South America (not south of Trinidad). 

South America between Trinidad and Cape St. Roque. 

Fast coast South America below Cape St. Roque. 

Via canal: 

(a) Australasia.:... 

( b ) India or Africa. 

(c) West coast South America. 

Via Magellan: West coast South America. 

Via Cape of Good Hope: 

(a) South and East Africa. 

( b) Far Fast. 

West and south coast South Africa. 

United Kingdom. 

France (Atlantic). 

Italy, North Africa, Alexandria. 

French Mediterranean. 

Greece... 

Pacific United States ports, via canal. 


From United States Gulf ports, same as from United States Atlantic ports, except— 


Cuba. 

Other West Indian ports. 

Mexico. 

Panama. 

North coast of South America (not south of Trinidad). 
South America between Trinidad and Cape St. Roque 

Fast coast South America below Cape St. Roque. 

Via canal: 

(a) Australasia. 

(b) India or Africa. 

(c) West coast South America. 


Per cent. 


T5 

T l 5 


T5 

T5 

tV 

tV 

T5 

1 

T 

1 

i 

Tf 

i 

Ttf 


29 


















































MARINE INSURANCE. 


65 


Notice 37a. 


American steamers and their approved cargoes only (excepting specie, bullion, jewelry, and precious 
stones) from any port in the United States to any port in the world, and vice versa.] 

These rates effective as to all applications received on and after November 
11, 1918, but subject to change without notice. 


Voyage. 

Between ports on Pacific coast, United States, and— 

Per cent. 

30 

Pacific United States ports. 

A 

31 

Hawaiian Islands. 

To 

Al 

At 

32 

Pacific coast of Panama. 

33 

Pacific coasts of Mexico and Central America. 

To 

34 

West coast South America. 

Ay 

i 

35 

China, Japan, Philippines. 

36 

India and Singapore. 

To 

Ay 

At 

37 

Australasia. 

38 

United Kingdom, via Panama. 

10 

i 

39 

France (Atlantic) via Panama. 

40 

Italy, North Africa, Alexandria, French Mediterranean. 



T 


Notice No. 38. 

CHANGE OF STEAMER TIME RATES. 

The following rates will be effective as to all applications received on and 
after November 11, 1918. but subject to change without notice: 

For 30-day periods. 

Per cent. 


Confined to United States Pacific coast_ A& 

Conhned to United.States Atlantic and Gulf coasts_ | 

Confined to the Western Hemisphere_ 4 

Confined to the Atlantic and Gulf coasts of the United States, ports on the 
Gulf of Mexico and Caribbean Sea, with privilege of West Indies not 

beyond island of Trinidad__ 1 

Confined to rhe Gulf coasts of the United States and Mexico, ports on the 
Caribbean Sea, with privilege of West Indies not beyond island of Trini¬ 
dad _„_ \ 


Notice No. 40. 

[American steamers and their approved cargoes only (excepting specie, bullion, jewelry, and precious 
stones) from any port in the United States to any port in the world, and vice versa.! 

These rates effective as to all applications received on and after November 27, 
1918, but subject to change without notice. 


Voyage. 


1 

2 

3 

4 

5 

6 

7 

8 
9 

10 

11 


12 

13 


14 

15 

16 

17 

18 

19 

20 


Between ports on Atlantic coast, United States, and— 


Per cent. 


Atlantic United States ports. 

Gulf United States ports... 

Halifax, St. John, and St. Lawrence ports. 

Bermuda, Porto Rico, Cuba, San Domingo, United States Virgin Islands 

Other West Indian ports..... 

Mexican Gulf ports. 

Panama... 

North coast South America (not south of Trinidadl. 

South America between Trinidad and Cape St. Roque-,. 

East coast South America below Cape St. Roque. 

Via canal: 

(a) Australia. 

( b ) India or Africa. 

(c) West coast South America. 

Via Magellan: West coast South America. 

Via Cape of Good Hope: 

(а) South and East Africa. 

(б) Far East. 

West and south coast South Africa. 

United Kingdom. 

France (Atlantic). 

Italy, North Africa, Alexandria. 

French Mediterranean. 

Greece. 

Pacific United States ports, via canal. 


i 

11 


Tff 

TJ 

tV 


Tff 

1 


At 

tV 

Ay 

vs 


i 

i 

T5 

■i 

i 

i 

3 

3 

i 

x 

8 

X 

4 


100770—20 

























































66 


MARINE INSURANCE. 


Notice No. 40—Continued. 


Voyage. 

From United States Gulf ports, same as from United States Atlantic ports, except— 

Peroent. 

21 


Tff 

2 9 

nthpr Wpet Indian nnrts .. 

TS 

23 


iV 

21 

25 

Panama, .-. 

A 

North coast of South America (not south of Trinidad). 

iV 

21'. 

South America between Trinidad and Cape St. Roque. 

TS 

27 

East coast South America below Cape St. Roque. 

TS 

28 

Via canal: 



(/O Australasia, ........ 



(h\ Tndia or Africa . 

| 

29 

(c) West coast South America. 

TS 




Notice 40a. 


[American steamers and their approved cargoes only (excepting specie, bullion, jewelry, 
and precious stones). From any port in the United States to any port in the world 
and vice versa.] 

These rates effective as to all applications received on and after November 27, 
1918, but subject to change without notice. 


Voyage. 

Between ports on Pacific coast, United States, and — 

Per cent. 

• 30 

Pacific United States ports. 

A 

31 

Hawaiian Islands. 


32 

Pacific coast of Panama. 

33 

Pacific coasts of Mexico and Central America. 

A 

TS 

34 

West coast South America. 

35 

China, Japan, Philippines. 

36 

India and Singapore. 

•ihs 

A 

£ 

37 

Australasia...T. 

38 

United Kingdom, via Panama. 

39 

France (Atlantic) via Panama. 

40 

Italy, North Africa, Alexandria, French Mediterranean. 

| 




Notice No. 41. 

CHANGE OF STEAMER TIME RATES. 

The following rates will be effective as to all applications received on and 
after November 27, 1918, but subject to change without notice: 

For 30-day periods. 


Per cent. 


Confined to United States Pacific coast_ ^ 

Confined to United States Atlantic and Gulf coasts_ y 8 

Confined to the Western Hemisphere_ y 8 

Confined to the Atlantic and Gulf coasts of the United States, ports on the 
Gulf of Mexico and Caribbean Sea, with privilege of West Indies not 

beyond Island of Trinidad_ y 8 

Confined to the Gulf coasts of the United States and Mexico, ports on the 
Caribbean Sea, with privilege of West Indies not beyond the Island of 
Trinidad_ y 8 











































MARINE INSURANCE. 


67 


Notice No. 42. 

FISHING VESSELS (STEAM AND SAIL)—HULLS. 

[Rates effective Nov. 27, 1918, but subject to change without notice.] 

Schooners, auxiliary schooners, and steamers. —Hulls (ballast included) and 
outfits, with privilege of extension to home port, if not arrived, as per con¬ 
dition of vessel policy. 

(A) Fishing trips out of Atlantic American ports, in Atlantic American, 

Canadian, and Newfoundland coastwise waters: 

Fishing trips out of Gulf ports, in Gulf waters: 

Per cent. 

1. For 1 trip not exceeding 2 weeks from date of policy_ Vs 

2. For 1 trip not exceeding 3 weeks from date of policy_ 

3. For 1 trip not exceeding 4 weeks from date of policy_ 

4. For 1 trip not exceeding 8 weeks from date of policy_ V± 

5. For 1 trip not exceeding 12 weeks from date of policy_ % 

6. For 1 trip not exceeding 16 weeks from date of policy_ Vz 

7. For 1 trip not exceeding 20 weeks from date of policy_ % 

(B) Where required, policies may be issued for one, two, or three months, 
rates of three-twentieths of 1 per cent for one month, one-fourth of 1 per cent 
for two months, three-eighths of 1 per cent for three months. 

Catch decline, value too uncertain. 

Notice No. 27. 

MASTERS, OFFICERS, AND CREWS OF VESSELS FROM ANY PORT IN THE UNITED STATES 
TO ANY PORT IN THE WORLD, AND VICE VERSA. 

These rates are effective on and after November 11, 1918, and are subject 
to change without notice. 

For every $100 of annual remuneration subject to a minimum of $1,500 and 

maximum of $5,000. 


Voyages. 

Steamers. 

Sailers 
and aux¬ 
iliaries. 

Tugs and 
barges, 
other 
than 
schooner 
barges. 

Between ports on Atlantic coast of United States and— 

Atlantic United States ports. 

0.001 

0.002 

0.0015 

Gulf United States ports. 

.0015 

.0025 

.0025 

Atlantic Canadian ports, New Brunswick, Nova Scotia, and New¬ 
foundland . 

.002 

.004 

.0025 

Bermuda, Porto Rico, San Domingo, Cuba, Haiti, and United States 
Virgin Islands. 

.002 

.004 

.0025 

Other West Indian ports. 

.0025 

.005 

.004 

Mexican Gulf ports . 

.002 

.004 

.0025 

Central American ports on Caribbean Sea. 

.004 

.005 

.004 

Panama . 

.0025 

.005 

.004 

Nnrth cnast, nf Smith America, (not south of Trinidad). 

.005 

.01 

.0075 

South America, between Trinidad and Cape St. Roque. 

.008 

.016 

.012 

Fast coast, South America below St. Roque. 

.01 

.02 

.015 

Via canal— 

Australasia. . 

.01 

.02 

.015 

Tnrlia or east, Africa. . 

.012 

.024 

.018 

West coast North or South America. 

.004 

.008 

.006 

Via, Magellan—West, coast. South America. 

.01 

.02 

.015 

Via Cape of Good Hope— 

South and east Africa. 

.02 

.04 

.03 

Far Fast .. . 

.025 

.05 

.0375 

West coast. Africa, south of Sierra, Leone. 

.025 

.05 

.0375 

West, coast Africa north of Sierra Leone. 

.03 

.06 

.045 

Mcditcrr&nOciii co£ist Africa irudiidinp Aloxandrin,. 

.03 

.06 

.045 

United Kingdom . . 

.03 

.06 

.045 

France . 

.03 

.06 

.045 

Spain Portugal and Italy..... 

.03 

.06 

.045 

7ores Madeira and Canary Islands... 

.03 

.06 

.045 

Cape Verde Islands.. 

.03 

.06 

.045 









































68 MARINE INSURANCE. 

For every $100 of annual remuneration subject to a minimum of $1,500 and 

maximum of $5,000 —Continued. 


Voyages. 

Steamers. 

Sailers 
and aux¬ 
iliaries. 

Tugs and 
barges, 
other 
than 
schooner 
barges. 

From United States Gulf ports, same as from United States Atlantic ports, 
except— 

Bermuda, Porto Rico, San Domingo, Cuba, Haiti, and Umted States 
Virgin Islands ....... 

0.0015 

0.003 

0.0025 

Oth^r W«St Indian ports . 

.002 

.004 

.0025 

Mexico . 

. 0015 

.003 

.0025 

Central Am p ri p an ports on Caribbean Sea. 

.0025 

.005 

.004 

Panama . 

.002 

.004 

.0025 

North coast of South America (not south of Trinidad). 

.004 

.008 

.006 

South -America and Oapp, St. Rocjug. 

.006 

.012 

.009 

oofl^t Sont.h America, below Cape St Roque. 

.008 

.016 

.012 

Via canal— 

Australasia . 

.008 

.016 

.012 

India or east Africa . 

.01 

.02 

.015 

West coast of North or South America.. ... 

.003 

.006 

.004 

Between ports on Pacific coast of United States and— 

Pacific United States ports. 

.001 

.002 

.0015 

Pacific Canadian ports. 

. 0015 

.003 

.0025 

Hawaiian Islands. 

.0015 

.003 

.0025 

Panama. . 

. 0015 

.003 

.0025 

Mexico and Central America. 

. 0015 

.003 

.0025 

West coast South America. 

.002 

.004 

.003 

Via Canal: 

North coast South America (not south of Trinidad). 

.004 

.008 

.006 

South America between Trinidad and Cape St. Roque. 

.006 

.012 

.009 

East coast South America below Cape St. Roque. 

.008 

.016 

.012 

China, Japan, Philippines. 

.004 

.008 

.006 

Australasia. 

.005 

.01 

. 0075 

India or east Africa...,. 

West coast Africa south of Sierra Leone. 

.006 

.01 

.012 

.02 

.009 

.015 

West coast Africa south of Sierra Leone via Panama. 

.025 

. 05 

.0375 

West coast Africa north of Sierra Leone. 

.03 

.06 

.045 



Applications may be made and policies issued for 90 days insuring the 
masters, officers, and crews of American merchant vessels, only if and while 
navigating the Western Hemisphere (North and South America) at the follow¬ 
ing flat rates for the period involved: 

For every $100 of annual remuneration subject to a minimum of $1,500 and 

maximum of $5,000. 


Voyage. 


Between United States Atlantic and Canadian ports. 

Between ports on the United States Pacific coast. 

Between ports on the United States Atlantic and Gulf coasts. 

Between ports on the United States Atlantic and Gulf coasts and Atlantic 

Canadian ports. 

Between ports on Atlantic and Gulf coast of North America, and ports in 
New Brunswick, Nova Scotia, Newfoundland, and the West Indies, 
not beyonrd the Island of Trinidad and on the Gulf of Mexico and 

Caribbean Sea.... 

Between United States Atlantic and Gulf ports, Mexican Gulf ports," and 

West Indies.. 

Between United States Atlantic and Gulf ports and Mexican Gulf ports.. 
Between ports on the Western Hemisphere. 


earners. 

Sailers 
and aux¬ 
iliaries. 

Tugs and 
barges, 
other 
than 
schooner 
barges. 

SO.012 

$0.025 

$0.018 

.004 

.008 

.006 

.004 

.008 

.006 

.012 

.024 

.018 

.03 

.06 

.045 

.018 

.036 

.025 

.012 

.024 

.018 

.03 

.06 

.05 


Applications may be made and policies issued for a period of 30 days, insur- • 
ing masters, officers, and crews of American merchant vessels navigating be- 

























































MARINE INSURANCE. 


69 


tween France and the British Isles (England, Ireland, Scotland, and Wales), 
at the following rate for the period involved: 

For every $100 of annual remuneration, subject to a minimum of $1,500 and 

maximum of $5,000. 

Between ports in the British Isles and France, and vice versa: 


Steamers _$0.10 

Sailers and auxiliaries_ . 20 

Tugs and barges other than schooner barges_ . 15 


Treasury Department, 

Bureau of War Risk Insurance, 

Marine and Seamen’s Division, Seamen’s Section, 

Washington, D. C., December SO, 1918. 

It is hereby directed that after 5 days from the date of this order all rates 
of premium fixed for insurance by the Marine and Seamen’s Division, Bureau 
of War Risk Insurance, shall be withdrawn. 

This order shall not affect the applications for insurance which have been 
received and accepted by the bureau prior to usch withdrawal, but policies 
shall be issued as heretofore. 

Since it appears to the Secretary of the Treasury that vessel owners, shippers, 
and importers are able to secure adequate war-risk insurance on reasonable 
terms, no further rates of premium will be fixed or published for the time 
being. 

This action is taken in view of the disappearance of war hazards of shipping 
since the signing of the armistice. 

Carter Glass, Secretary. 


Treasury Department, 

Office of the Secretary, 
Washington, May 28, 1919. 


ORDER. 

All shipowners or charterers upon whom is imposed, by virtue of the act 
authorizing the issuance of policies insuring the complements of vessels by 
the Bureau of War Risk Insurance, the duty of procuring this insurance, ana 
who have failed to file provisional or final application for such insurance ana 
who do not file such application on or before June 9, 1919, shall be deemed 
prima facie guilty of an attempt to evade the provisions of this act, and pro¬ 
ceedings will be instituted to enforce the penalty imposed by the terms of the 
act upon such delinquents. 

Carter Glass, Secretary. 


Treasury Department, 

Office of the Secretary, 
Washington, May 28, 1919. 


order. 

Notice is hereby given that the books of the marine section of the Marine 
and Seamen’s Division of the Bureau of War Risk Insurance will be closed 
in respect of insurance effected prior to January 4, 1919 (except for payment 
of losses and averages), on the evening of June 9, 1919. Thereupon all insur¬ 
ance still remaining provisional will be deemed definite for the amounts 
provisionally opened, and, in all cases in which it has not already been made, 
payment will forthwith be required of the premium shown as due. 

Carter Glass, Secretary. 








70 


MARINE INSURANCE 


Exhibit E. 

Financial operations of marine section. 



Hulls. 

Cargo. 

Freight. 

Total. 

Insurance: 

Insured. 

$1,227,641,404.00 
23,750, 681. 00 
1, 203, 890, 723. 00 

26,208,044. 95 
2,237,064.13 
23,970,980. 82 

$890,353,911.00 
50,021,318.00 
840,332, 593,00 

23, 698,361. 57 
1,225,322. 61 
22,462,038. 96 

$23,475.187. 00 
586,387. 00 
22, 888, 800. 00 

305, 582. 47 
3,192. 92 
301,389. 55 

$2,141,470, 502.00 
74,358,386. 00 
2,067,112,116.00 

50, 211,988.99 
3, 465,579. 66 
46,746,409. 33 

Canceled. 

Net. 

Premiums: 

Received. 

Returned. 

Net. 



Insurance on cargoes: 

American, 53.45 per cent.$449,157,770.95 

Foreign, 46.55 per cent. 391,174,822.05 


“ Hulls. 15.612,552. 68 

Cargo. 14,099,354.09 

Freight. 228,888. 88 


Total. 29,940,795.59 


United States Shipping Board 

Emergency Fleet Corporation 

Division of Insurance, 

Washington, -July 17, 1919. 


Hon. Frederick R. Lehlback, 

Chairman Subcommittee of Committee on the 

Merchant Marine and Fisheries. 

House of Representatives, Washington, D. C 


Sir : Referring to my testimony before your committee on the 9tli instant 
and your request for a list of losses for which the insurance fund of the United 
States Shipping Board Emergency Fleet Corporation is liable, I hand you the 
attached. This list shows the accidents grouped as follows: 


* 

Estimated. 

Paid. 

Marine. 

War. 

Marine. 

War. 

Collisions. 

$1,215,690.00 
4,319,370.00 
572,400.00 
325,800.00 
522,400.00 
980,000.00 
120,000.00 
1,749,750. 00 
174,300.00 

$60,000.00 

$47,676.66 


Strandings. 


Machinery damage. 




Steering-gear trouble. 


1,539.38 
1,546. 76 
1,071.50 
70,000.00 
2,311,167.11 
1,071.50 


Heavy weather. 


$65.00 



Serious leaks. 



Total loss. 

1,870,000.00 
175,000.00 

8,038,406. 74 

Miscellaneous. 

Total. 


9,979,710.00 

2,105,000.00 

2,434,072.91 

8,038,471.74 



I have also given the name of the vessel, the date of the accident, the estimated 
loss, or the amount paid, and a general idea of where the accident happened. 
The marine and war losses are shown separately. 

I trust that the live copies inclosed will give you the information desired. 
If I can be of any further service to you or the committee, I will be very glad to 
do anything you may suggest. 

Yours, very truly, 

B. K. Ogden, 

Acting Director of Insurance. 






























































Losses for which Shipping Board is liable. 

COLLISIONS. 


MARINE INSURANCE. 


71 


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GROUNDED AND STRANDED—Continued. 


78 


MARINE INSURANCE. 






































































































Brookfield (wood)... May 29,1919 5,000.00 . Near Ocean City. 

Clara. June 20,1919 5,000.00 . English Channel. 

__ __ _ _ _ _ _ - -- - -- — — 

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STEERING GEAR TROUBLE—Continued. 


82 


MARINE INSURANCE. 






















































































































MARINE INSURANCE. 


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HEAVY WEATHER—Continued. 


84 


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MISCELLANEOUS. 


86 


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MARINE INSURANCE. 


87 


Mr. Lehlbach. I understand that there are gentlemen present, 
representatives of marine underwriters and insurance companies, and 
I think the committee would be glad to hear from them. Is Mr. 
Bertholf here? You represent the American Bureau of Shipping? 

Mr. Bertholf. Yes; but we are not underwriters. And the presi¬ 
dent of the American bureau is here, Mr. Taylor. 

Mr. Hedge. I extended your invitation to the American under¬ 
writers and there was a meeting yesterday of the executive committee 
of the American Marine Underwriters Association, and they have 
carefully drafted recommendations. The full meeting will be held 
and they will send their recommendations down probably next week. 
It is impossible to go over such an important matter in such a short 
time. In fact, the way it was left at the last meeting I was to write to 
you or to the secretary asking for a special date for that hearing. 
That is the reason the Association of Underwriters is not ready to 
make its report to you to-day. 

Mr. Lehlbach. As was stated at the first meeting held by this sub¬ 
committee, the purpose of these hearings is to get information and 
suggestions upon which to base legislation, if necessary, for the en¬ 
couragement of marine insurance of the American Merchant Marine 
by American capital and through the agency of American companies. 
Now, we would be glad to hear from any representatives, other than 
Mr. Hedge, who would care to give information or make suggestions 
in accordance with the plan I have outlined. 

Mr. McGee. Iam here at your invitation. 

Mr. Edmonds. Give the stenographer your name and state in what 
capacity you appear. 

STATEMENT OF MR. WILLIAM H. McGEE, MEMBER OF THE FIRM 
OF WILLIAM H. McGEE & CO., OF NEW YORK CITY. 

Mr. McGee. My name is William H. McGee, and I am a member 
of the firm of William H. McGee & Co., of New York City, marine 
insurance agents, representing 12 American companies. 

Mr. Edmonds. Those are purely American companies, are they, 
Mr. McGee? 

Mr. McGee. Purely American companies. We have one Scanda- 
navian company, which is essentially a reinsurance company. All 
the others are purely American companies. We represent no foreign 
companies whatever, except, as I say, one reinsurance company. 

Mr. Chindblom. What company is that? 

Mr. McGee. The Scandanavia, of Copenhagen. They are admitted 
to the State of New York and authorized to do business. 

Mr. Lazaro. What do you mean by American companies—Ameri¬ 
can men and capital ? 

Mr. McGee. I mean native American companies, incorporated and 
formed in the United States, managed in the United States, and 
owned there, and all of their capital here. Such companies as tho 
St. Paul Fire & Marine Insurance Co., of St. Paul; the Providence & 
Washington Insurance Co., of Providence, incorporated in 1799, and 
the St. Paul in 1866; the Great American, of New York; the Phoenix, 
of Hartford; the Westchester, of New York; the Security, of New 
Haven, and the Camden, of Camden. 

Mr. Lehlbach. Are these companies simply marine companies? 


88 


MARINE INSURANCE. 


Mr. McGee. No. 

Mr. Leiilbach. Are they also fire insurance companies ? 

Mr. McGeE. They are also fire as well as marine. I take it you are 
Jill very familiar with the subject of marine insurance and its very 
international character. 

Mr. Edmonds. No; I do not want you to say that. We are only 
Members of Congress and we want you to tell us something about 
marine insurance. 

Mr. Chindblom. Don’t assume we know anything about it. 

Air. McGee. Good. Marine insurance is of a very international 
character; perhaps it is more international,, or as international, as 
shipping itself. The marine underwriter is called upon at his desk in 
New York to entertain risks which sail to and from all parts of the 
world. The international character bf marine insurance can best be 
illustrated by an experience that I had not long ago. One of our New 
York shippers came to me. He was making a shipment of goods 
from New York to Rio de Janerio. We had transacted his business 
for a good many years. He presented to me a letter from his con¬ 
signee which instructed him to make the shipment from New York 
to Rio de Janerio and then it was going to Santa Cruz, I believe, 
and they had instructed him to not place the insurance, but to advise 
the facts of the shipment, the name of the steamer, the amount of the 
invoice, and the character of the goods, to an agent of a British insur¬ 
ance company located in Geneva, Switzerland. Now Mr. Merchant 
in Brazil had his policy of insurance with a British company, placed 
through an agency in Geneva, Switzerland. That would perhaps 
illustrate, in a way, the wideness of the international character of 
marine insurance and almost the impossibility of directing it or con¬ 
trolling it. 

Marine insurance is a business which naturally seeks the lowest 
rate of premium, as an illustration of that kind would show, and it is 
almost impossible with all due deference to you, gentlemen, to under¬ 
take legislation which will confine it or dam it up in any one particu¬ 
lar direction. That has been tried, and we have illustration of that 
in Argentine and Uruguay where marine insurance is a Government 
monopoly; and yet, as a matter of fact, perhaps not 2 per cent of the 
marine insurance in Argentine and Uruguay is controlled there. We 
in New York do a very large volume of business to and from Argen¬ 
tine and to and from Uruguay; and in the same way the markets of 
Europe do a tremendous lot of that business. The result is the native 
companies of Argentine and Uruguay get very little; they are small, 
unimportant companies and they are becoming less important. 

Mr. Chindblom. Then, as a matter of fact, they are not attractive 
to the shippers? 

Mr. McGee. Well, I have never been down there. 

Mr. Chindblom. I mean the terms are not attractive. 

Mr. McGee. Their terms are not attractive, and the matter which 
answers your question there is this, that where a Government monop¬ 
oly of that kind is established it generally means a higher rate of pre¬ 
mium and generally carries with it taxation which'forces the local 
underwriter to charge such a high rate of premium that the business 
is forced to seek, and naturally seeks, the lowest level of rates. Just 
like water, the marine insurance business will find its natural level 
in the lowest rates of premium. 


MARINE INSURANCE. 


89 


One more disability the American underwriters labor under, and 
I would include in that not only the native American companies but 
also thos of foreign companies which are admitted to do business 
here—one more handicap is that it is so easy for the insurance broker 
in New York, Philadelphia, Chicago, San Francisco, or New Orleans 
to send a cable to London and place his insurance there. Now it 
can be placed there easier and cheaper, purely because of the ques¬ 
tion of taxation. A London underwriter can take something like 
a 10 per cent less rate and have more money left in his pocket with 
which to pay losses and expenses than a New York underwriter can 
do, largely because of that question of taxation and the question 
of the higher cost of living in normal times, a higher standard of 
living perhaps, and a higher standard of office salaries and office 
expenses. An American underwriter’s expense ratio is considerably 
higher than the expense ratio published by the various British com¬ 
panies. The British companies, as a rule, will show an expense ratio 
in their annual statements of something like two and one half to 
three, or thereabouts, of the average American marine insurance 
company. Acting on that same basis and taking expenses, as ex¬ 
penses exclusive of brokerages, which put in on exactly the same 
parity with the Britich company, the expenses of the American 
company will probably be five or six, and I think I am moderate 
in putting it at that figure. 

Mr. Edmonds. Do the British companies pay the same brokerage 
as the American companies? 

Mr. McGee. Yes; they do. 

Mr. Edmonds. Here or in England, or both? 

Mr. McGee. The British companies transacting business here 
adopt the American standards, of course. So to all intents and 
purposes they are on the same standard as an American company. 

Mr. Edmonds. Does that in any way discriminate against the 
American companies getting business? c- 

Mr. McGee. No. 

Mr. Edmonds. If a shipper, say, some large shipper who has an 
office in both New York and London, should have a cargo from 
New York to London, could he insure that from London direct 
without going through a broker? 

Mr. McGee. Yes; he could. 

Mr. Edmonds. Would that be cheaper? 

Mr. McGee. Not financially. But, as a matter of fact, the actual 
practice—I think companies generally are very apt, both American 
and foreign, to encourage direct dealings between the merchant and 
the company. We always like to have our personal trade and we 
always like to have our "personal connections rather than to secure 
our business through boat brokers who are free lances and whose 
hand, as a matter of general business practice, is always against the 
underwriter. 

Mr. Edmonds. Do the companies in that case collect a percentage 
of the premium ? 

Mr. McGee. In England the nominal allowances are 5 per cent 
brokerage, which is supposed to go to the broker, and then 10 per 
cent discount which is taken off after brokerage is calculated, which 
means that the 10 per cent is per cent to 14 per cent. Now, the 
discount is supposed to go to the merchant and the brokerage is sup- 


90 


MARINE INSURANCE. 


posed to go to the broker. Now, if the merchant deals direct with 
his underwriter in England, he undoubtedly can get the 10 per cent 
and probably the 5. 

Mr. Edmonds. He would get the 5 by side agreement ? 

Mr. McGee. It is not blown from the house tops. 

Mr. Edmonds. No. But even if the large companies should hap¬ 
pen to have a large number of steamers and have an insurance man 
in their employ, they would naturally pay no other brokerage 
charge 

Mr. McGee. Yes"; they would establish a marine insurance de¬ 
partment. 

Mr. Edmonds. Yes. In other words, the broker has a hard time 
to get along, excepting on the ordinary every-day cargoes here and 
there. 

Mr. McGee. No. As a rule, in England, I fancy the great bulk 
of business is conducted through brokers, just as the great bulk of 
it to-day is conducted fhrough brokers in the United States; brokers 
or brokers’ agents; that is to say, agents of the company who par¬ 
take more of the character of a broker than they do of an agent. 
They are frequently licensed as agents of a company, as a .matter 
of business convenience. 

Mr. Chindblom. When you speak of expense ratio, just what did 
you mean by that? You say 5 and 6. 

Mr. McGee. I mean the expense of conducting business; adminis¬ 
tration expense exclusive of brokers. 

Mr. Chindblom. Five and six per cent of what? 

Mr. McGee. Five and six per cent of the premium. 

Mr. Chindblom. Gross premium ? 

Mr. McGee. Gross premium—income. 

Mr. Edmonds. Is there a difference betwen the form of policy 
given by the English and other foreign companies, German and 
Scandinavian companies, and American companies, that would dis¬ 
criminate against American shipping? 

Mr. McGee. Hardly. Of course, every country, every insurance 
market, has its own standard form of printed policy. The form of 
policy used by New York is the one that lias been handed down from 
time out of mind. The standard New York form of policy lias been 
changed very little in a very great many years, that is, the printed 
blank form which is used. 

Speaking of hulls, American-owned hulls, American-built hulls,, 
there is a standard form which the American underwriter has adopt¬ 
ed after consultation with British underwriters. That was some 
10 or 12 years ago. It was adopted as one means in checking com¬ 
petition and putting a stop to the introduction of clauses by brokers 
in printed forms. There was a time when every broker in New York 
and elsewhere in the country, as well as almost every broker in Lon¬ 
don had his own particular pet set of clauses which he printed up, 
and he would pin them on his application blank when he filed it 
with the company. And if the companies did not read them care¬ 
fully, we would find, and did find to our sorrow and to our cost, that 
Mr. Broker, over night, very frequently, put in something new or 
dropped a word here and there. So we found ourselves let in for 
some pretty hard experiences which we had never anticipated. The 
business of marine insurance, as a rule, is done in such a rapid busi- 


MARINE INSURANCE. 


91 


ness fashion that it is not possible, in a business sense, not prac¬ 
tically possible, to scan and read the printed clauses which a broker 
pins on his application blank when he offers one insurance. We fre¬ 
quently have, in busy times, lines of 8 or 10 people awaiting their 
turn, and to scan a printed set of clauses is quite a job. 

Mr. Edmonds. Do you have inquiries from people to insure their 
cargoes in particular companies? 

Mr. McGee. Frequently, yes. 

Mr. Edmonds. Do they designate foreign companies frequently ? 

Mr. McGee. Yes; they do. I would just like to finish that thought 
about the forms. 

Mr. Edmonds. Go ahead. 

Mr. McGee. Otherwise, I will leave my remarks in the air. Ten 
or twelve years ago, there was a conference between the leading under¬ 
writers in London and the leading underwriters in New York, under 
which we agreed upon a standard form of policy which was to be 
used in the insurance of American hulls; and, in the absence of an 
express agreement to the contrary, that standard form is used. For 
that reason, the form which we use in New York and elsewhere in the 
United States is identical with the form used in England. So the 
quotation on American hulls is really on a parity so far as policy con¬ 
ditions are concerned. 

Mr. Chindblom. Right there, if I might interrupt you; do the 
English underwriters use different standard policies for English hulls 
than those used for American hulls? 

Mr. McGee. There is quite a difference. As a matter of fact, it 
is not as favorable to the shipowner as the form of policy which is 
granted to the American shipowners. 

Mr. Chindblom. The form for English hulls is not as favorable? 

Mr. McGee. Not as favorable for the English hulls. 

Mr. Edmonds. And yet tlirough their companies they will take an 
American form of policy and underwrite it? 

Mr. McGee. An Englishman will underwrite in New York or 
London just as freely as he will in Paris on the hull. And that is 
one of the great difficulties we labor under, of the fact that the Brit¬ 
ish companies—and I am speaking of the British companies, be¬ 
cause they are the great hull underwriters—a British company ad¬ 
mitted to do business in New York, and that privilege carrying with 
it a certain measure of responsibility, will just as readily write an 
American risk in London as it will in New York. In fact, some of 
them go so far as to write no American hulls in the American market, 
but they write them entirely in the English market. The result of 
that is, and that is one of our handicaps, that the London under¬ 
writer has an advantage of anywhere of from 10 to 12 per cent or 
more in the rate. That arises through the difference of the expense 
ratio that I spoke of a moment ago and is due also to the difference 
in outgo in the way of commissions, because the British company, 
writing business in New York, must pay its New York representa¬ 
tive—must either pay him a salary or pay him a commission. 

Mr. Chindblom. Does the American shipper get any advantage 
out of that? 

Mr. McGee. Writing in London? 

Mr. Chindblom. Yes; on a policy written in Great Britain or in 
London ? 


92 


MARINE INSURANCE. 


Mr. McGee. Yes; he does, and he very frequently gets a lower rate 
of premium cost because the London underwriter can quote a lower 
rate of premium and still have a little the best of it. 

Mr. Edmonds. Have you finished that line? 

Mr. McGee. I think I have as far as hulls are concerned. You 
asked me a question; would you like to have me answer it now ? 

Mr. Edmonds. No; I will ask you that later on. 

Mr. McGee. I said a little while ago that marine insurance was an 
international business, and, like the ocean, it can not be dammed up. 
You can dry it up in spots, but you can not dam it up successfully. 

Gargo has been referred to, the insurance of merchandise, the 
shipment of goods. The international character of the marine in¬ 
surance is, I think, exemplified there very clearly. To a shipping 
transaction there are always two ends. Sometimes there are inter¬ 
mediate stopping points. Mr. Merchant in Calcutta wants certain 
classes of goods. He sends an order to his London house, and the 
London house transmits that order to New York. Now, a commission 
merchant in New York, and perhaps a branch office of the London 
or Calcutta house, may execute that order. They buy the goods and 
they ship them. The New York office will inquire what the rates 
are in New York. Well, the rates in New York are thus and so. 
They cable to London the New York rates for insurance are so much. 
Now London or Calcutta may determine whether that insurance is 
placed in New York, London, Calcutta, or Shanghai, which is no 
uncommon thing. In other words, the shipper of the goods in New 
York, or elsewhere in the United States, has, in a very large number 
of cases, no voice whatever as to where that insurance will be placed. 
It is the man at the other end, the man who is buying the goods, the 
man who is going to pay for them who will dictate where the in¬ 
surance will be placed. And therefore it is not possible for us to 
say “you must insure in New York,” because the owner of the goods 
somewhere else says “ I will insure where I please; I am the goods.” 
Therefore he buys the goods on cost, insurance, and freight terms or 
f. o. b. terms. 

Mr. Edmonds. Are most goods sold that way, f. o. b. ? 

Mr. McGee. It would be hard to answer that question. The fact 
that all marine underwriters in New York do a very large business 
on goods that are shipped to foreign countries all over the world 
Is an indication that there is a very large amount of business done 
on the cost, insurance, and freight basis. Of course, in many cases 
the American shippers of goods are the people who are interested 
all the way through. They may have their branch house in London, 
Calcutta, Australia, or South America. 

Mr. Edmonds. In that case, do they make inquiry along the line 
to see where they can get the cheapest insurance ? 

Mr. McGee. Very often. One large house I know of in New 
York has branches in London, and during prewar times they had 
a branch in Hamburg. They also had branches in South America 
on both the east and west coast, and they had some connections in 
Australia. That house was constantly shopping between all the 
markets in Europe. The head of that house at one time in an address 
he made before somebody (and he was dealing with the international 
character of the business generally; he was speaking not only of the 
insurance, but what we commonly mean when we say the commerce 


MARINE INSURANCE. 


9$ 


of the country), took this illustration: His house in Shanghai, for 
instance—that is not a general coaling point, but his house on the- 
west coast of South America—wanted to buy a cargo of coal, or a 
series of cargoes of coal, and South American brokers, New York r 
London, New Castle, and South Wales brokers were asked for quo¬ 
tations—what will you deliver coal of such and such a grade for-— 
and there were three big, important buying markets. The next thing 
was, lie telegraphed to London, and he inquired in New York, and 
he inquired in Hamburg, and he inquired in Copenhagen, and Chris¬ 
tiania, and some other points, “ Where can I hire a vessel cheapest V r 
So that the hiring of the ship was the next stage in it. The third 
thing was, he followed it up with the cost of marine insurance— 
what will be the rate to New York on cargoes for these destina¬ 
tions or shipping points, by approved vessels—■“ What will be the- 
London rate; what is the Hamburg rate; what is the rate in Paris ; 
what is the rate in Shanghai; what is the rate in Australia.^ 
So that in that one transaction they had gone all over the 
world for their cargo, for their ship, and for their insurance. Now, 
when it came down to a finality, the coal was bought in one place, 
in one country; the ship was chartered in a second, and the insurance 
was placed in some place entirely different. 

Mr. Edmonds. The cost of insurance is, then, a vital matter of 
establishing a price at the delivered point? 

Mr. McGee. Yes, sir. The cost of insurance is, in a great many 
transactions particularly large ones. And even the small shipper- 
looks sometimes to the pennies very closely when he is dealing with 
the insurance question, and therefore anything which goes to make 
up the cost of the insurance rate is vital not only to the merchant 
who wants to insure but to the insurance company who must quote 
its rate and who must calculate these various additions, these various 
things which go to make up the cost to them. 

Mr. Edmonds. While you are talking on cargo insurance, tell us 
something about how these large companies that are buying goods 
and have been buying goods in this country, are operating in regard 
to their insurance, like the American Sugar Refining Co. which is 
doing a large export and import business, and Williams & Sons of 
New York, and the Eastern Export Co., and all those big companies- 
that are forming now? 

Mr. McGee. In the case of the American Sugar Refining Co., I 
think that business as far as the American business is concerned, for 
one reason or another, has almost altogether, and for a great many 
years, and from as far back as I can remember, and I can remember 
a long way, the American sugar business has been placed with the 
American companies, the big sugar business. 

Mr. Edmonds. How has that been placed? Have they their own 
insurance department and do it themselves ? 

Mr. McGee. No ; they have their own insurance department. The 
American Sugar Refining Co. is a big organization and, like other big 
organizations, they departmentalize the various parts of their busi¬ 
ness. They have an insurance department, and they have always had 
a capable man managing it, but their business is placed by a New 
York firm of brokers and has been very largely placed with Ameri¬ 
can companies. And when you speak of sugar business, I think you 


94 


MARINE INSURANCE. 


pick out the one exception of that sort. That is a big organization 
which has stuck to American companies. 

There are other large sugar importers in New York, quite a group 
of them—in prewar times there were quite a group of them but of 
course they have all died out or stopped doing business during war 
times—who placed their entire business with English companies. I 
mean Lloyds. And it was placed in the English market and it was 
done entirely on the question of rates. The American underwriters, 
I think—I know—keep much better statistics of the individual lines 
of business than the average run of foreign companies. .Lloyds, I 
think, keep little or no statistics, no figures of any kind. A great 
deal of business, you might say, is done in the hat so far as Lloyds 
underwriters are concerned. And, therefore, if the business is being 
carried on at less than cost it would very quickly show up on the 
records of the American marine insurance companies. If the busi¬ 
ness of one particular shipper shows up at a loss, we know it, and 
we are in position to apply the remedies. But Lloyds underwriters 
look upon a broker’s account as a whole and a business which is a 
heavy loss making business can be placed in Lloyds and be contin¬ 
ued in Lloyds for a very long time without any one being any the 
wiser; so long as Mr. Broker’s total gross business of all kinds and 
of every character hides it, it can go on. So that this particular class 
of sugar business, as I say, that has been placed in foreign countries 
has been placed there because American underwriters did not care to 
face an absolute out-of-pocket loss, merely for the pleasure of doing 
business with their next-door neighbor. 

Mr. Kincheloe. What did you call that—The American Sugar 
[Refining Co.? 

Mr. McGee. The American Sugar Refining Co. 

Mr. Kincheloe. Why, in your opinion have they done business 
exclusively with American companies to the exclusion of all others ? 
Do you think it is because they got it cheaper, or was there some 
other reason? 

Mr. McGee. No; I think there were probably other perfectly 
good reasons. I think in some cases they may have had some per¬ 
sonal interest in the underwriters with whom they placed their 
business. 

Mr. Kincheloe. Do you think they got it as cheap as they could 
have gotten it in foreign companies? 

Mr. McGee. Oh, on the whole, I think so. 

Mr. Kincheloe. Why did you think any other reason prompted 
them, then? 

Mr. McGee. Sir? 

Mr. Kincheloe. Why would any other reason prompt them to 
patronize exclusive American companies if they got it just as 
cheap ? Why would not that be the natural thing for them to do ? 

Mr. McGee. I think it is the natural thing, but it is just this: 
Cheapness is a relative term, and a great many merchants prefer 
to pay just a little bit more in the way of the rate for the purpose 
of having their insurance placed with somebody they can go in and 
talk to and with whom they can argue if things are not going just 
right without taking into consideration the fact that if they have 
a lawsuit they would much rather have to sue somebody in their 


MARINE INSURANCE. 95 

home town, city, or State, in the same country with them, than to 
have to go to a foreign country. 

Mr. Ivincheloe. But you do really think that these people got 
their insurance just as cheap as they could have in foreign countries? 

Mr. McGee. Well, I would answer that both yes and no. If the 
companies were all of equal rank, and sticking to companies rather 
than to individual underwriters, I think there is little doubt but 
that they got, on the whole, just as cheap insurance. In some cases 
it might be more and in some cases less; but, taking it as a whole, 
their premium outgo for the year would probably be very little 
different in placing insurance with American companies than if they 
placed with foreign companies of the same grade. 

Mr. Kincheloe. Do American companies of the same grade write 
just as cheap as foreign companies? Is that true? 

Mr. McGee. No; it is not true. 

Mr. Edmonds. Mr. Kincheloe was not here when you made your 
remarks. 

Mr. Kincheloe. No; if that is already in the record, go ahead 
with your argument. 

Mr. Chindblom. Would there be any advantage in the adjustment 
of losses, in placing insurance with American companies as against 
foreign companies? 

Mr. McGee. The advantage in the adjustment of losses is that if 
you can go into a man’s office and talk to him about your loss and 
tell him about this thing and he sees the paper is not just exactly 
correctly expressed, and anyhow you have been doing business with 
him for a long time, and he ought not to look too closely to minor 
technicalities, why, you get your loss settlement a great deal quicker, 
and more friendly and more advantageously when dealing with 
somebody you can go in and talk to than when transmitting papers 
to some foreign company, and those papers having to go to Mr. 
Claim Settler in a foreign country, and after he has a pretty bad 
night of it and a sour morning, why, he is apt to throw your papers 
aside. Now, if you will go to your next-door neighbor, the insurance 
broker in your town, you can see if he is happy or not; and if he 
is not happy you do not talk to him about your loss but you talk 
to him about something he is interested in. 

Mr. Chindblom. Is there any difference in the formalities in pre¬ 
senting claims ? 

Mr. McGee. Yes; there is a difference—there is a difference in 
that way. The great practice in England is—and I think that is 
true in most other countries—that claims are presented formally 
through papers. That is true in the United States. If you have a 
claim, you present to the underwriter certain papers, to show evi¬ 
dence of shipment of the goods, evidence of conditions by which 
they were delivered, and evidence of the fact that they have been 
lost by some peril of the sea. 

Mr. Kincheloe. Now, if you will excuse me there, that is exactly 
where my mind was running. I can see a great deal of force in what 
you say, that a business man likes to deal with a company where, if 
there is any loss or dispute, he can go in their office and talk to them 
about it, and if he has to sue, to be able to sue in his own country. 
Now, in view of that advantage in the American marine insurance 
business, why is it they can not compete and really handle all of the 


93 


MARINE INSURANCE. 


marine insurance business, if they are able to do it, over the foreign 
man? 

Mr. McGee. Because a great deal of our business, in a great many 
instances, is transacted with companies in foreign countries. And 
we have that condition to-day ourselves to some extent. It is trans¬ 
acted with people who know nothing about the particular business 
and nothing about the cost of it and who will have to wait until 
after it is over until they know the cost price of the thing that is sokh 
That is always one of the difficulties of the marine insurance business. 
In the very nature of things we are selling insurance in advance of a 
knowledge of what the cost price of that business is going to be and* 
in a great many instances, even over a considerable period of time. 
I do not like to use the term luck, but yet luck is a thing all of us 
must to an extent recognize. Call it by other names, but after all it 
is that old factor of luck. One insurance company may insure ship¬ 
pers of grain regularly from New York to Liverpool and they have 
done that business for 20 years, and just the way it happened to run 
with them they may have had little or nothing in the way of losses. 

Another insurance company insuring other shippers, frequently 
by the same vessels but, of course, very largely by other vessels, al¬ 
though other vessels of an equal class, its experience may have run 
to loss after loss. There was no difference in judgment in the tw T o 
underwriters but just the way things sometimes run. So that the cost 
of that insurance to one underwriter is one thing and the cost to the 
other man is another—it is very low. Now you take a foreign under¬ 
writer, who is not located here, who is not familiar with the haz¬ 
ards, not familiar with the conditions, and who on top of that es¬ 
capes the taxes and expenses which the company located in the 
United States must bear, that foreigner, on a great many classes of 
business, does write a great deal cheaper in a great many cases than 
we can or will, and there is a great deal of saying “ let him have it; 
if that is his price, why, the more he has of it, the quicker he will 
find out what his cost is.” 

Mr. Ivincheloe. Does not that uncertainty of rates exist just the 
same with the domestic companies as it does with the foreign com¬ 
panies ? 

Mr. McGee. No; because the American business, the American 
underwriters, supposedly and as a matter of fact, are familiar with 
it. We know our local hazards; we know what a shipment going 
up the Mississippi River means. If you take, for instance, a ship¬ 
ment coming from some foreign country to New Orleans and then 
going by river steamer up the Mississippi River, the American ma¬ 
rine insurance underwriters have been familiar with that business 
for a good many years—ever since it was a business. And when the 
packets w r ere going up the river, w^e knew in a great many directions 
the cost of that business meant we had to charge a rate of 2 per 
cent or 3 per cent or some other such figure. And the underwriter 
in a foreign country does not know anything about it. He looks on 
a map and says “ It is a river; it is not far up there; that is not any 
more than an eighth of an inch up there and I guess an eighth extra 
will do for that,” or he will do it without any extra charge. 

Now, the American underwriter knows his business; he sells his 
insurance at a fair price considering what he knows about the cost 
of it, but the underwriter in some foreign country who knows noth- 


MARINE INSURANCE. 


97 


ing about that merely guesses at it and he may guess ’way wide and 
divert a very big business to his foreign market and keep it there for 
a considerable length of time. 

Mr. Kinchedoe. Now, do I understand from that statement that 
their lack of knowledge of that fact is the main reason why the for¬ 
eign companies are cheaper than every other American company on 
the same line of risks? 

Mr. McGee. That is one reason, lack of knowledge; and also the 
difference in the expense of doing business. An American under¬ 
writer must pay taxes. We pay taxes and license fees and so on and 
so we have to add that. An underwriter in a foreign country escapes 
all of this. I said, I think before you came in, that on the general 
average, the general run of business the underwriter in London, a 
Lloyds underwriter, can insure a New York merchant at a rate of 
premium at something like 15 per cent less than the New York under¬ 
writer and still have more money left in his pocket with which to 
pay losses and expenses. Taxes make for that, and the difference in 
the cost of administration makes for that. 

Mr. Edmonds. These are Government taxes or State taxes that you 
are talking about? 

Mr. McGee. Both. The New York State tax or, rather, the State 
of Texas tax—the tax in some States will average close on to 4 per 
cent. You take Texas, for instance, the tax and local license fees and 
out-of-pocket expenses which go from the insurance company to the 
Government, and a set of taxes to the municipalities in the State of 
Texas, and it will bring that tax rate up close to 4 per cent. In fact, 
in our office we had figured it on one occasion, within two years, that 
our outgo was over 4-J per cent on the business we transacted in the 
State of Texas. 

Mr. Edmonds. Is that true in New York? 

Mr. McGee. The New York tax, the State tax, is somewhere around 
2 per cent. 

Mr. Edmonds. Is that less than Texas? 

Mr. McGee. That is less than Texas. New York State is about 2 
per cent and Texas is about 4 or 4^ per cent. 

Mr. Edmonds. New York is the most liberal of all in these charges, 
isn’t it? 

Mr. McGee. I should say that it is as liberal as any. I think New 
Jersey has a little advantage. I think there is a little advantage in 
New Jersey, but I am not sure of that. 

Mr. Edmonds. How is it as to Pennsylvania’s tax ? 

Mr. McGee. M}^ recollection is that it is about the same as New 
York. I think New York, Pennsylvania, and Massachusetts, which 
are the three big States for insurance business, they are pretty closely 
alike. 

Mr. Chindblom. Do you happen to recall anything about Illinois? 

Mr. McGee. I do not. But my impression is (I may be wrong in 
this, but it was either Illinois or Ohio) it has gone so far on the 
question of taxes, in comparatively a short time, that it has tried to 
make marine insurance companies pay a fire marshal tax—that is, 
a tax which was raised to support the fire marshal of the State who 
dealt purely with fire-insurance questions. 

160770—20-7 


98 


MARINE INSURANCE. 


Mr. Kincheloe. What would be your remedy to equalize the over¬ 
head charges of these companies so that American companies could 
compete with them ? 

Mr. McGee. As we see it, the great evil of our business, the great 
evil of the competitive feature of our business, is the great facility 
with which marine insurance may be exported from the country by 
insurance brokers and escape taxes and other onerous features. 
Three or four years ago I encountered one insurance broker in New 
York City (who was "a lazy wretch, but who did quite a business), 
and I spoke to him about coming into our office once in a while. He 
said “ It is so much easier for me to let somebody else do the w T ork, 
so that when I have any marine-insurance orders, I just draw up a 
cablegram and cable to London and let the London broker do all the 
work.” He said, “ Of course, I only get about two-thirds of the com¬ 
mission, but look at the expense I save; look at the trouble I save.” 

Mr. Edmonds. He has the same brokerage tax to pay that you 
have, hasn’t he? 

Mr. McGee. No, sir. Brokers are not taxed. Insurance com¬ 
panies are. 

Mr. Edmonds. Do foreign insurance companies do business in New 
York without tax? 

Mr. McGee. No, sir. Foreign insurance companies which are per¬ 
mitted to do business in New York pay substantially the same tax 
as the native companies. But if an insurance broker sends an order 
to London and the insurance is placed in London—I keep saying 
London all the time, because, after all, London is the great marine- 
insurance market of the world; I do not mean anything invidious; 
I speak of that as a big market—the insurance broker cables the order 
to London and the insurance company in London accepts it. It pays 
no tax at all in the United States unless something in the nature of 
a policy is sent back to the United States, in which case, under the 
income-tax law, there is a provision that policies of that sort pay, I 
think, a 3 per cent tax. And American marine insurance company 
pays a Federal tax of 1 per cent on the premiums. It is supposed to 
be a stamp tax, but the stamp feature is not practical, so we pay on a 
monthly statement rendered the internal revenue collector. We pay 
1 per cent. It is more than 1 per cent; it is 1 cent on each dollar or 
fraction, so that it is more than 1 per cent. But we pay that tax. 
Now, if a policy came from a foreign country to the United States, 
that is supposed to pay a tax of 3 per cent; but if no such policy 
ever comes into this country and there is no very great reason why 
it should, it pays no tax at all. 

Mr. Chindblom. To go to another subject: How do American com¬ 
panies compare with foreign companies in the matter of net earnings 
upon the capital invested ? Is their experience the same, and is there 
attitude the same? 

Mr. McGee. Well, by and large, I should say that the American 
companies, while they do very well, the American marine insurance 
companies have never shown the great profits the British marine 
insurance companies have shown. By no means. There is a bio- 
difference. 

Mr. Chindblom. Upon the capital invested ? 

Mr. McGee. Upon the capital invested. Of course there you have 
a different feature. It is a very common practice, almost the uni- 


MARINE INSURANCE. 


99 


versal practice, in foreign countries to have a subscribed capital upon 
which they do their trading, and then they pay up varying per¬ 
centages of it. I do not know whether there is any law governing the 
proportion of paid-up capital to subscribed capital in England, but 
it is no uncommon thing to see figures of subscribed capital of 
£1,000,000 and paid-up capital of £100,000—something of that kind. 
Those are not the precise figures. There have been a large number 
of companies, newly organized, in England during the last three or 
four years, with a subscribed capital of 3,000 or 4,000 pounds sterl¬ 
ing, and paid-up capital of £80,000, and in some cases as low as 
10,000. So they trade on an artificial capital. The American insur¬ 
ance company must pay up every dollar of its capital; but you will 
find in continental insurance companies—it was true of Germany 
before the war, and it is to-day true of companies in* Norway, in 
Sweden and Christiana, you will see it in the statements which they 
publish their profits are figured, sometimes when they state what 
percentage of profits they make, they frequently base it on their 
subscribed capital, which, of course, minimizes the percentage. 

Mr. Edmonds. Are there any terms in the American policies that 
are different from the English policies ? 

Mr. McGee. The American cargo policy is a different one in its 
general text from the British policy. There are a great many things 
that the American must put in his policy because he has no laws 
which guide him. England has a code enacted during the time of 
King Edward, and therefore an Englishman does not have to say 
as much in his policy as we do. Another thing, frequently the 
American courts interpret language differently from the British 
courts, so that it is necessary for the American to express himself 
pretty carefully at times and to put it into the policy. A great deal 
of the English law is comprehended in the code. If there is noth¬ 
ing said about it they turn to the code and the code says thus and so. 

Mr. Edmonds. Is that code published ? 

Mr. McGee. Yes, sir. 

Mr. Edmonds. Could you put it in the hearings as a part of your 
testimony ? 

Mr. McGee. I have no doubt but that I could obtain a copy of it 
and send it to you. 

Mr. Edmonds. I would be very glad, indeed, if you would so we 
could look that over. . . 

Mr. McGee. It is called the Marine Insurance Code, and it is 
public property. . 

Mr. Edmonds. Dr. Huebner says he will give us a copy of it, so 
you need not mind. 

The newspapers up East here a short time ago were talking about 
a clause called the deviation clause in American policies that was 
very detrimental to our shippers. Is that true ? 

Mr. McGee. No, sir. There is such a clause, but we in the insur¬ 
ance business think it is pretty much of a burden on us at times. The 
deviation clause means this, and the reason for the reference to that 
clause in the policies of insurance, I will give you. The deviation 
clause reads: 

This policy shall not be vitiated by any unintentional error in description of 
voyage or insurance, provided the same be communicated to the insurer as soon 
as known to the insured, and an additional premium paid if required. 


100 


MARINE INSURANCE. 


I think I have quoted it quite correctly. 

Mr. Edmonds. They seem to find fault with the additional pre¬ 
mium more than anything else. 

Mr. McGtee. I will explain that to you. It means this, and its 
language shows pretty clearly what it means—it means that if a 
man has made an honest error in describing the name of the vessel 
(and sometimes it is difficult to get the name of the vessel quite 
correctly), or if he has made some unintentional error in the descrip¬ 
tion of the voyage or misdescribed the goods that he has insured, it 
shall not be held against him and he has a chance to rectify it. Now, 
that clause has been referred to in the newspapers recently in this 
connection; it brings in what might be called the abandonment of a 
voyage or a prolonged delay. The situation which called forth 
that newspaper discussion was this: There was a strike in the River 
Plata, both at Buenos Aires and Montevideo. Steamers were sail¬ 
ing from New York and elsewhere to Buenos Aires particularly, 
and steamers were arriving there'with no means of discharging their 
cargo, and the vessels would lay out in the stream. Somebody hit 
upon the device of taking that steamer to Montevideo or some other 
point in Uruguay, which was not then affected by the strike, and 
discharging the cargo on the dock, dumping it there, and notifying 
the consignees of the goods, however, where the goods were. Now, 
the carrier—I do not know how extensively it was done, but I know 
in a great many cases it was clones—did not consider his duty ended 
there, but he hired a lighter or local steamer or something else on 
which the service was running, and he would bring those goods 
back to Buenos Aires and have a discharge. Now, there was an 
extension of the underwriter’s liability, in some cases as long as 
b0 or 90 days. The deviation clause protected the merchant, but 
the merchant was remiss in his duty to the underwriter in not in¬ 
forming the underwriter of the fact and paying an additional pre¬ 
mium for that increased hazard which the underwriter was en¬ 
titled to if he chose to ask for it. 

Mr. Edmonds, Do the English companies ask for that or just 
the American companies? 

Mr. McGee. Oh, no; that is a world-wide condition. 

Mr. Edmonds. That is a world-wide condition? 

Mr. McGee. That is a world-wide condition. 

Mr. Edmonds. I understand that some ships were wirelessed to 
go into Sao Paulo, or Rio de Janeiro, instead of going down to 
Buenos Aires, during this strike. They say that then the insur¬ 
ance companies charged an extra premium. Is that true? 

Mr. McGee. That is true, probably. I do not know; I have not 
any illustrations of that kind in mind. I have no particular ex¬ 
periences. 

Mr. Edmonds. Would that be a fair thing to do? 

Mr. McGee. Yes. 

Mr. Edmonds. Here is a ship taking a shorter voyage. 

Mr. McGee. Oh, you mean if the goods were discharged there 
and the voyage ended there. 

Mr. Edmonds. The voyage ended there. 

Mr. McGee. No; they would not charge an extra rate for that; I 
think they would charge a lower rate. 


MARINE INSURANCE. 


101 


Mr. Edmonds. I think the charge was made in the newspapers 
that in the case of a cargo of coal, say, after it was on the way down, 
they found some other customer for it at some other point and in 
making that change in the policy there was a charge made for it. 

Mr. McGee. I should say as a matter of general practice, no; be¬ 
cause it is a much shorter voyage. The underwriter’s risk is termi¬ 
nated sooner, and as a matter of standard of rates, the general market 
rates to Rio and Santos and Sao Paulo are lower than the rate to 
Buenos Aires, Rosario, or any of those places, or Montevideo. 

Mr. Edmonds. Then it would be only when there was an extra 
service that an extra charge would be made under the deviation 
clause ? 

Mr. McGee. Only in the case where there was an extra service. 
The voyage from New York to Buenos Aires—there are some of the 
ships that will make it in 23 days but as a rule it is something like 
a month. Now, we make a rate—the marine insurance rates are not 
based upon the time consumed, but they are generally based on the 
hazards encountered. But, of course, the element of time does enter 
into it to some degree. But the rate to the River Plata is always 
higher than the rate to Rio de Jeneiro. I think as a general thing we 
would rather have a ship going into Rio de Janeiro than we would 
going into the Argentine. And if there has been such a case as the 
newspapers cite there must be some explainable reason. The voyage 
from New York to the River Plata is a matter of 30 days. If that 
cargo is discharged at some intermediate point, and they put it on the 
open dock, subjecting it to exposure and subjecting it to damage by 
rain and subjecting it to all sorts of things and it is kept there for an 
extra month, or an extra two months, or an extra three months, it 
would seem the underwriters are fairly entitled to remuneration for 
the increased insurance hazard. And even there the experience I 
have had in New York would indicate that the underwriters have 
dealt very leniently with that. They have been very apt to be gov¬ 
erned by the position in which the particular merchant found him¬ 
self. If the merchant did not have much of an extra risk and he had 
collected his money for his invoice, and he was going to be seriously 
out of pocket, I think the general run of merchants have been very 
apt to find that the general run of underwriters have treated them 
fairly and very liberally. 

Of course, we have this factor; it is the factor of the human 
equation and I think the underwriter is a very human being. If he 
has had a merchant who has come in and ground him down to the last 
nickel on his rate of premium, has squeezed him, and the underwriter 
has felt the liability, and Mr. Merchant comes in with a situation of 
that kind, I think the underwriter might be quite human and say: 
“ You will pay me now what you would not pay before.” I have no 
illustrations of that kind, but I think we are dealing with the ques¬ 
tion of the human equation and you must look at it in that way when 
you are dealing with newspaper stories and things of that kind. 

Mr. Edmonds. In the settlement of losses on cargoes, damaged 
cargoes, are the English companies as lenient as the American com¬ 
panies? Take two damaged cargoes in New York, one insured in a 
London company, or a foreign company, and another insured in an 
American company. 


102 


MARINE INSURANCE. 


Mr. McGee. The method of adjusting losses has, in the course 
of time, developed itself into something like a well-established set of 
rules which are applied the world over. The question of leniency 
only comes into play when the man’s claim does not measure up to the 
regular rules. If I may illustrate that, you have a shipment of goods 
that has arrived at its destination in a damaged condition. The mer¬ 
chant the world over, whether it is Shanghai, New York, London, or 
Buenos Aires, immediately calls in a representative of the under¬ 
writers. And the underwriters have representatives for claims set¬ 
tling purposes the world over. Our own office has what we call aver¬ 
age agents practically at every port in the world, and at more than 
half of the big commercial cities of the world, practically all the 
commercial cities. So that Mr. Merchant calls in the average agents. 

Mr. Chindblom. Right there, if I may interrupt: Are the Ameri¬ 
can companies as well equipped in that regard, in the matter of ad¬ 
justments elsewhere than at home, as the foreign companies? 

Mr. McGee. Quite as well equipped. 

Mr. Edmonds. The same adjuster acts for both American and for¬ 
eign companies, doesn’t he? 

Mr. McGee. Frequently the same adjuster. 

Mr. Edmonds. He is simply in that line of business and gets paid 
for his services? 

Mr. McGee. He gets paid for his services. 

Mr. Edmonds. And the Lloyds people would use the same man 
ordinarily that you would use? 

Mr. McGee. We do not ordinarily use a Lloyds man. Lloyds 
agents are frequently used in that way, but there is a distinction 
between a Lloyds underwriter and an English company’s under¬ 
writer in England or elsewhere. While the Lloyds agents are fre¬ 
quently used by the companies as well as by Lloyds, as a rule we are 
very apt to use others. But we establish them. For instance, our 
own companies in Australia, New Zealand, in India, China, and 
Japan—I say our companies I mean those I represent—have probably 
40 or 50 claims agents in those countries. And in nearly every 
case they are officials of the local companies, local insurance com¬ 
panies, and in many cases those local insurance companies are, after 
all, really English companies. 

Mr. Lehlbach. Mr. McGee, in the companies which you represent, 
from what source do they obtain the information upon which they 
base the rate when an application for insurance is made ? 

Mr. McGee. May I go back and finish just this one other thought? 
Because I have left this one in the air, too. 

Mr. Lehlbach. In your own time, when you deal with it, will you 
come to that? 

Mr. McGee. I will come to that. Now, continuing the answer of 
the question you asked me, and that is the difference in the manner 
of settling losses, is the English underwriter or any foreign under¬ 
writer more lenient than an American underwriter, I would say no. 
The method in which a loss is adjusted is this: When the goods ar¬ 
rive at their destination the average commissioner is called in and 
he and the consignee of the goods discuss it. Mr. Consignee says 
44 These goods are damaged 50 per cent,” but Mr. Appraiser says 
44 No; they are damaged only 25 per cent.” You see they fix per¬ 
centages. If they can not agree on the percentages there are various 


MARINE INSURANCE. 


103 


courses adopted by which the percentage of that loss is established 
in some official manner. It may go so far as a public sale at auction. 
The sound market value of those goods is compared with the dam¬ 
aged market value. That establishes a percentage. That percentage 
is applied to the sum insured. So that if, as is very commonly done, 
the goods are insured for more than what they cost at the original 
point of destination, the merchant collects his percentage on the in¬ 
sured value. Now, that is world-wide; so that as far as that is con¬ 
cerned, the question of leniency does not enter into it at all. The 
only point where anything in the nature of leniency can come in is 
where that loss does not reach the required percentage. And the 
percentage is almost invariably fixed in the policy. That is to say, 
5 per cent is a common per cent fixed, meaning free of particular 
average under 5 per cent; meaning that if the goods sustain a dam¬ 
age of less than 5 per cent the underwriter is not responsible for the 
loss. If it runs 5 per cent or anything above that, the underwriter 
pays what that loss is. 

Mr. Edmonds. That is a world-wide custom ? 

Mr. McGee. That is a world-wide custom. And the reason for 
that is to shut out the average normal trade loss. In package goods 
there is always a certain measure of damages from the water and on 
the platform; they get soiled. 

Mr. Edmonds. Is that percentage used by any of the foreign com¬ 
panies ? 

Mr. McGee. It is a very common thing. It is a common thing to 
use 3 per cent particular average in England and it is a common 
thing here. So, as far as that particular feature is concerned, I should 
say the world is on a parity. The only point where anything in the 
nature of liberality would come in is where that loss does not reach 
that percentage and in that respect, too, I think, the American com¬ 
panies are quite as libreal as the foreign companies. I know in our 
own experience if we would only pay the losses for which we were 
by contract liable we would reduce our rates very materially and 
make more money. But there is that broad liberality in the adjust¬ 
ment of all marine losses and the handling of them, that if a loss 
comes pretty nearly reaching 5 per cent or 3 per cent, or whatever it 
may be, we pay it. Everybody does. 

Mr. Chindblom. As a matter of insurance, is there an arbitration 
clause in these policies, 

Mr. McGee. No; it has never been in the marine policy. The 
principle of arbitration does come into play very frequently; yet, it 
is not expressed in the policy. If you were to attempt to do that, it 
would be a tremendous task, to put in anything in the nature of an 
arbitration clause, because the marine insurance document is a world¬ 
wide document. The policy which we or any other American in¬ 
surance company may issue in New York, accompanies the goods; it 
goes out with the invoice and the bills of lading. 

Mr. Chindblom. That is universal? 

Mr. McGee. That is universal. Our losses are settled—we not only 
adjust losses but we literally pay them all over the world. We may 
not know anything about it until the documents come back to New 
York, when a bank draft is issued paying it. So that if anything of 
that kind is attempted, it would have to be mighty elaborate, because 
my impression is the English law and usage on the question of arbi- 


104 


MARINE INSURANCE. 


tration would have to be expressed in some peculiar manner. In 
other words, an arbitration clause which would work in New lork 
would not gee one bit with somewhere else. 

Mr. Lehlbach. As a matter of fact, the only recourse, where an 
insurance adjustment by agreement is not had, is to sue in the court? 

Mr. McGee. Yes; that is true the world over, like any other trans¬ 
action. 

Mr. Lehlbach. I say that is universal ? 

Mr. McGee. If two parties can not agree it is very common to 
refer them to arbitration voluntarily and if they can not agree then 
it is a question for the courts. Now, there again, I think, the Ameri¬ 
can policy is quite as liberal and the American underwriter in his 
practice is quite as liberal as anywhere else; because in the very docu¬ 
ments we issue—we do not issue policies generally—generally what is 
known as a short form certificate of insurance is issued, and that cer¬ 
tificate is a short form of policy because it sums it all up by saying: 
“ The claim shall be adjusted at the port of destination,” according 
to the usage of Lloyds or the usages of the port of Hamburg, or what¬ 
ever it may be. In other words, we put ourselves into the local courts. 

Mr. Kincheloe. Did I understand you to say that if the cargo was 
insured for more than it was worth and there was a total loss that you 
paid only the actual value of the cargo ? 

Mr. McGee. No, sir. 

Mr. Kincheloe. Do you pay the full value? 

Mr. McGee. Yes; in the absence of fraud. Or let me say this: In 
the vast majority of the marine insurance transactions the principle 
of the valued policy is followed. In other words, we agree what 
the value of the goods is. Now, in the absence of fraud, that stands, 
even though there may be some exaggeration, or some exaggeration 
in the amount of insurance. 

Mr. Kincheloe. And that is adjusted on the amount of the policy, 
at its destination or wherever it is lost ? 

Mr. McGee. No. In the case of a damage- 

Mr. Kincheloe. I am talking about a total loss. 

Mr. McGee. In the case of a total loss, of a clean-cut total loss 
without any salvage, we pay the face of the policy in the absence 
of fraud. 

Mr. Kincheloe. But in the case of damage to the goods, that 
damage is adjusted on the price of the goods, what they are worth 
at their destination, or where they started? 

Mr. McGee. At the destination. The percentage of damage is ar¬ 
rived at by a comparison of the sound market value, sound whole¬ 
sale market value, as compared with the damaged wholesale market 
value. 

Mr. Kincheloe. At destination? 

Mr. McGee. At destination. The agent places a percentage, which 
is applied to the sum insured. 

Mr. Kincheloe. Let me ask you a question about overhead charges 
being greater for the domestic than for the foreign company. One 
item of charges, you say, is the Federal tax, called a stamp tax. 
When was that tax put on—in the last revenue bill that passed 
Congress ? 

Mr. McGee. No; it was first applied back at the time of the 
Spanish war. That is when it was first provided for. 



MARINE INSURANCE. 105 

Mr. Kincheloe. Do you mean that you have been paying that tax 
ever since? 

Mr. McGee. It was repealed, and then back in 1915, or 1916, 
when the emergency war-revenue bill was passed, that was prac¬ 
tically reenacted and then again reenacted in the present income 
tax. 

Mr. Kincheloe. Yes. Now, do not the insurance companies of 
England and the war-striken countries over there, all of them as a 
matter of fact, pay some kind of a tax? 

Mr. McGee. They pay no tax on premiums. They pay a tax on 
profits. I say in England; they may pay a tax in other countries. 

Mr. Kincheloe. In England, for example, they do? 

Mr. McGee. Yes. 

Mr. Kincheloe. But their sum total war taxes there on their 
business is not as great as it is in America ? 

Mr. McGee. I could not answer that with accuracy. But if you 
take their war tax, and take our own profits tax and excess-profit 
tax, I think the American companies have much the worst of it. 

Mr. Kincheloe. I imagined they would pay an excess-profits tax 
more than you would. 

Mr. McGee. They pay an excess-profits tax on profits only; but 
you see, as I understand it—that is one feature of the business I 
do not come directly in contact with—that is a process of working 
it out on the books. As I understand it, the American marine in¬ 
surance tax, we practically pay three taxes to the Federal Govern¬ 
ment—the Federal tax, the income tax, and the excess-profits tax. 

Mr. Kincheloe. I was not as much interested in the details of the 
tax as I was to arrive at the fact. I can not see why there should 
be any difference in the rates charged by any insurance company, 
except because of the overhead charges of one exceeding those of 
another. 

Mr. McGee. That is just exactly it; it is overhead charges. 

Mr. Kincheloe. Because if they are operating in the same field 
the hazard is just the same, the percentage? 

Mr. McGee. Yes, that is true. But of course you have to take into 
account the question of experience. You take two underwriters both 
of equal intelligence, both of the same experience, and both with 
the same knowledge of the business, one in England and one in New 
York: The English underwriter can quote a lower rate of premium 
by reason of his lower overhead charges than the American under¬ 
writer, and the Englishman still have a little more money right in 
his pocket with which to pay losses and to get a profit. 

Mr. Kincheloe. Of course, that is true of the overhead charges 
are greater in America than in England. 

Mr. McGee. That is it. 

Mr. Kincheloe. I say in the last analysis, I can not see where there 
would be anv difference, with the same experience, of course, and in 
the same field and assuming the same hazard, except the difference in 
the overhead charges—that is, I can not see any legitimate reason. 

Mr. McGee. Of course, there is very often a* very great difference 
in two risks which look just alike. At'the same time, that still leaves 
this—by that, I mean- 

Mr. Kincheloe. That would strike an average, wouldn’t it, of the 
same thing in the course of business? 



106 


MARINE INSURANCE. 


Mr. McGee. It would in time; yes, strike an average. 

Mr. Chindblom. Are license fees anything of a factor ? 

Mr. McGee. In some States, yes. Not in such States as New 
York, Massachusetts, Pennsylvania i and I think, Illinois. I think 
the fees- 

Mr. Edmonds. Is there any competition between the American 
companies as to rates? 

Mr. McGee. Oh, yes. In the present condition of affairs we have 
competition between experience and ignorance. 

Mr. Edmonds. You mean between the Government and the under¬ 
writers ? 

Mr. McGee. No; I mean in market conditions. 

Mr. Edmonds. In other words, can a man take a policy to an 
underwriter, or to a company, and get it at a lower rate than he can 
with another company? 

Mr. McGee. To-day in New York; yes, sir. That is due as I say, 
to the competition between experience and ignorance. And by that 
I mean this, that at the end of December, 1909, in New York State, 
there were just 26 marine insurance offices, including one or two that 
had more than one company. To-day there are something like 150 or 
160. 

Mr. Edmonds. What do you mean by marine insurance companies? 
They are not companies; they are agencies. 

Mr. McGee. It may be a company’s office, or it may be an agent’s 
office. I mean the market capacity. There were 26 places to which 
a man could go to place his marine insurance in 1909. No; I am in 
error on that; it was 13. In 1909, there were 13 places to which a 
man could go to place marine insurance in New York. 

Mr. Kincheloe. Were they all American companies? 

Mr. McGee. No ; American and all kinds. In 1910, the law of the 
State of New York was changed so as to admit companies that were 
previously barred. It was the practice of the State of New York 
not to permit a company to do more than one class of business; that 
is to say, a fire company could not be admitted to do a marine in¬ 
surance business and a marine company could not be admitted to do 
a fire insurance business. There were a limited number of companies 
that had been established in New York for a good many years, prior 
to the enactment of that law, which was originally not a law but a 
rule of practice, under the regime, I think, of the superintendent or 
commissioner of insurance, Mr. McCall. He established a rule that 
a company ought not to expose its capital to more than one line of 
business. That was subsequently enacted into law. Now, as of 
January 1, 1910, that law was repealed, and the companies were 
admitted then to do both lines of business if they had a sufficient 
amount of capital. In 1910 there were 13 new companies, so then 
there were 26 companies. 

The war produced a situation, and the large amount of business 
arising from the huge war premiums, they were large in size and 
therefore attracted a lot of capital, so that to-day I think we have 
something like 160 to 175 individual insurance companies doing busi¬ 
ness in New York. Now, it takes a long time to train a marine under¬ 
writer. There is no royal road to education in marine insurance. 
They have to serve an apprenticeship from the ground up, because 
they must learn by experience and experience only. And there has 



MARINE INSURANCE. 


107 


been a great demand for marine underwriters, and the supply was 
lacking, and therefore there have been gentlemen previously engaged 
in various lines of business who have just taken up marine underwrit¬ 
ing during the past three or four years. And that is what I mean 
when I say it is competition between experience and ignorance that 
is to-day producing a very large difference in the rates. And then 
there have been a very great many companies that have been estab¬ 
lished during the war time that got the taste of a big premium in¬ 
come—and a big loss outgo with it—but they got the taste of big fig¬ 
ures and now they are trying to keep their average income up to the 
income that they established in war times. Therefore there is a 
great deal of competition which can only have one end. You can not 
sell insurance for less than cost any more than you can sell anything 
else. And the man who is selling his insurance for less than cost, it 
means the same, and that any other man in any other business comes 
to when he sells for less than cost. 

Mr. Edmonds. There is a competition between the companies, 
though, for the business ? 

Mr. McGee. There is. 

Mr. Edmonds. And there is a place for the broker now. 

Mr. McGee. Well, I do not know about the broker. There are so 
many of them; the new broker would have a hard time now in New 
York unless he had friends on both sides of the table. 

Mr. Edmonds. Is that competition true all over the country ? 

Mr. McGee. All over the country; yes. 

Mr. Edmonds. Of course it will simmer down to some sort of a 
basis after a while. 

Mr. McGee. After a while; yes. 

Mr. Lehlbach. To what degree would the present existing Ameri¬ 
can marine insurance companies be able to absorb the entire under¬ 
writing business on American cargoes and their bottoms? 

Mr. McGee. Business begets capacity. Where there is business 
to be placed the market will be found. To take a concrete example, 
the American hull business, until very recent times, it has been a neg¬ 
ligible thing. To successfully transact marine insurance business an 
underwriter must have a volume of spread; he must have his liabili¬ 
ties spread over a wide surface. For that reason, back of 1910, it 
was a difficult thing for the American shipowners to place more than 
10 or 15 per cent of his value, the value of his vessel, in the American 
market; and that was a fact in not only the native American com¬ 
panies but companies of foreign origin. He could place only a small 
proportion of his value because there was not enough business for 
any one underwriter to hazard any very large sum on any particular 
risk. 

Now, as the number of American hulls grow and has grown and 
as the values grow and have grown, the capacity is widened. In 
1910, my own company, one of my companies, one then doing that 
class of business, and then a prominent company, had fixed what it 
called the retained line; that is, an amount it would carry at its own 
risk, at something like $3,000. We did not have enough of this kind 
of risks to warrant our hazarding any more money than that on any 
one particular vessel. That same company to-day, due to the in¬ 
crease of the value of the property in vessels, the individual vessels, 
due to the very large increase in the number of vessels to-day, we 


108 


MARINE INSURANCE. 


will take $20,000 on exactly the same vessel. The entire capacity of 
my own companies (and I speak of my own companies, because it is 
a eoncerete example) on an American hull in 1910 was a matter of 
$7,000 or $8,000. If a broker comes to me to-day with a risk I like 
the looks of I will take $100,000. Now, in that same proportion the 
capacity of the market has grown and the number of companies has 
grown. On a real good vessel, of a real good character, I have not 
the slightest doubt but that you could place in the New York market 
to-day something like $1,000,000. Of course the great majority of ves¬ 
sels afloat do not measure up to that standard. 

Mr. Edmonds. That would be on the hull and cargo of the boat? 

Mr. McGee. On the hull alone. 

Mr. Edmonds. Now, what would you do with a ship like the 

Lusitania? 

Mr. McGee. On the Lusitania , I think we could struggle along very 
comfortably with a line of $500,000. 

Mr. Edmonds. Would that be the entire insurance on her that could 
be placed now ? 

Mr. McGee. You could place $5,000,000 on a vessel like the Lusi¬ 
tania. on the New York market to-day. 

Mr. Chindblom. In American companies? 

Mr. McGee. In the market; not solely American companies. But 
in purely American companies you could probably place something 
like $3,000,000. I thing I am conservative in saying that. 

Mr. Edmonds. Now, the English companies would take the entire 
risk, wouldn’t they ? 

Mr. McGee. In this country? 

Mr. Edmonds. No; over there. 

Mr. McGee. Yes; but the English market has its limitations. The 
English market to-day is sometimes running up to some extreme 
values, to be sure. They are running in cases where the values run 
up to high extremes. We find ourselves in this condition; we find 
that London is now and then sending orders to New York to place. 

Mr. Chindblom. Reinsurance? 

Mr. McGee. Yes. 

Mr. Kinchelow. In American companies? 

Mr. McGee. Yes. 

Mr. Edmonds. Of course, as those values go down, I suppose the 
course will be different? 

Mr. McGee. That brings in just one other thought, the thought of 
the handicap under which American companies labor. American 
companies during the past three or four years have seen the desir¬ 
ability of their embarking in a world-wide business. A group of 
American companies in New York have put their heads together and 
so now we will cooperate Avith one another in appointing agencies 
throughout the world. But one handicap they have encountered 
and one thing that is an exceedingly serious handicap for an Ameri¬ 
can company doing a world-wide business is this: Under the law of 
the State of NeAv Jersey, to take a concrete example, and it was also 
true up to a very short time ago of the State of Minnesota, if an 
American insurance company, in compliance with the laws of some 
foreign country, made a deposit such as our own American States re¬ 
quire of foreign companies, these deposits must be taken bodily out 
the funds of the American insurance companies. For instance, 


MARINE INSURANCE. 


109 


in order to transact business in one foreign country, one of the com¬ 
panies with which I am connected made a deposit—I have forgotten 
the sum, but we will say $100,000—in a foreign country. It imme¬ 
diately had to take that money out of its assets and set it aside so that 
the particular State in question no longer recognized it. 

Now, it means that that company, if it does an American business, 
loses the benefit of its own funds merely because it has had to comply 
with just such laws as our own by depositing that money in trust in 
a foreign country. 

Mr. Edmonds. Do the foreign companies have to do that, too? 

Mr. McGee. Yes, sir. A foreign insurance company can not trans¬ 
act business in the State of New York, depending entirely upon the 
class of business it is going to transact. If it is going to transact a 
marine insurance business, it has to put up in the State of New York 
$200,000 plus $100,000 at least for a surplus, or it can not come in. 

Mr. Edmonds. That is not true of the brokers who do this rein¬ 
surance or insurance business through the cable on the other side, 
is it? 

Mr. McGee. No; a broker is a free lance and goes where he 
pleases. He goes to a merchant and says: “ Please let me do your 
business for you, and it will not cost you anything for my services.” 
Sometimes the merchant listens to him and lets him do it. The 
broker will cable the rate to London, or he may cable to Italy or he 
may cable to France or he may cable to China. 

Mr. Edmonds. Do these Lloyds underwriters deposit money over 
here, too? 

Mr. McGee. No, sir; a nonadmitted company, which would in¬ 
clude Lloyds, a company which is not admitted to do business in the 
United States, pays no attention to our laws or the tax or anything 
else. You have to go over there to sue them. 

Mr. Edmonds. If a broker insures through Lloyds then, the Ameri¬ 
can broker insures through Lloyds, what happens? They keep the 
policy there or the policy lies there; and if there is any damage, they 
have to be sued there? 

Mr. McGee. Very often the policy is sent to this country, but now 
that there is a Federal premium tax on it I do not believe that the 
policies come over here any more than they have to. 

Mr. Edmonds. Well, do the shippers insure in that way? 

Mr. McGee. Oh, yes. 

Mr. Edmonds. Is there a big volume of that business ? 

Mr. McGee. A tremendous volume. Hazarding a guess, I should 
say that in per cent it would be anywhere from 20 to 30 per cent of 
the commerce of the port of New York that is exported by insurance 
brokers to foreign companies; that is to say this, that the New York 
merchant, the large New York merchant—the small man does not do 
it, because he does not want to have to go to Europe to sue somebody, 
but the large mercantile houses in New York and elsewhere through¬ 
out the country—commonly authorize their brokers to place the in¬ 
surance in foreign markets. Our own Navy Department does it. On 
naval vessels the builder’s risk on naval vessels built for the United 
States Government was frequently wholly insured in foreign 
markets. 

Mr. Edmonds. That is rather peculiar. 


110 


MARINE INSURANCE. 


Mr. McGee. It was because of a very slight saving in rate. 

Mr. Edmonds. Who has done that, the Navy Department ? 

Mr. McGee. Yes, sir. Now, that illustrates, the freedom with 
which American busines can be exported to foreign countries. 

Mr. Edmonds. What percentage; did you say how much it was. 

Mr. McGee. I should say something like 20 to 30 per cent of the 
commerce of the port of New York is shipped to foreign markets by 
American insurance brokers. There was a time when I think it was 
nearer 50 per cent. It is done purely on the question of insurance 
rates. 

Mr. Edmonds. Would it go back to that again? 

Mr. McGee. If they are permitted to, and if the rates of premium 
favor them; yes. 

Mr. Edmonds. Is there such a thing as a broker taking fees for 
insurance placed on American rates, and then reinsuring in foreign 
markets and make more money on it. 

Mr. McGee. Reinsurance applies to transactions between insur¬ 
ance companies. That is, in our business, when we use the word 
“ reinsurance,” we mean that one company, which for one reason or 
another has a larger risk on an individual vessel than it cares to 
carry at its own hazard, goes to some other insurance company and 
says, “ Please take part of this line.” That is what we mean by rein¬ 
surance. 

Mr. Edmonds. I am just talking about the premium. 

Mr. McGee. The broker does not reinsure. A broker goes out as 
a free lance and he owes allegiance to no insurance company. A 
broker goes from one insurance company to another in this market 
or in foreign markets seeking the cheapest market, or what he con¬ 
siders the most favorable market. 

Mr. Edmonds. Does the customer get the benefit of that most fav¬ 
orable market in which he insures ? 

Mr. McGee. They are supposed to. I think it would be some¬ 
thing—we had that situation to arise during the war-risk situation, 
and the competition again of experience, knowledge, and intelligence 
against ignorance. We found in New York that there were quite a 
number of brokers who were attracted by the large amount of money 
that was being handled and they came in the business without any 
knowledge of it. Some of those brokers, as we express it, traded. 
They would go to a merchant and say “ I will place your insurance 
for 3 per cent,” and then they would place it somewhere for 1 per cent 
or 2 per cent and the broker would take the difference. But the 
marine insurance men do not look upon that as being legal or proper, 
and the experienced insurance broker does not do that sort of thing. 
The experienced insurance broker gives his client, the merchant, the 
benefit of the same rate at which he himself places it. But the broker 
gets his remuneration through a commission which is allowed by the 
underwriters. 

Mr. Edmonds. That condition that you say has existed during the 
war, will that prevail when things return to normal? 

Mr. McGee. Undoubtedly the question of competition; yes, sir. 

Mr. Edmonds. No; I do not mean the question of competition, I 
mean the question of this shopping, of brokers trying to make extra 
profits out of the business. 

Mr. McGee. They have been pretty well found out. 


MARINE INSURANCE. 


Ill 


Mr. Edmonds. What happens to them when you find them out? 

Mr. McGee. Well, if you can get the merchant to come up before 
the district attorney, it means jail in New York State. But the 
broker is very apt- 

Mr. Edmonds. To carry his office in his pocket and skip? 

Mr. McGee. No; he has learned to be shrewd. He keeps within 
the law. We had one case of that kind, where the broker was sup¬ 
posed to place the insurance in France but had not. Of course you 
could not get the underwriter in Paris to come over to New York so 
the district attorney said, “ What can I do ? ” So the thing is this, 
that no experienced, well-informed insurance broker ever does just 
that sort of thing. Sometimes the well-experienced insurance broker 
of a fleet of vessels, or in some other case where he has to use a variety 
of markets, will say to the insured, “ I will do your business at the 
average of such and such a rate,” made up of one price in one market 
and some other price in another. But there the broker knows what 
he is doing and that is proper. The broker is not making anything 
on that and the broker still gets his commission. 

Mr. Leiilbach. Would you suggest by means of legislation any 
restrictions or limitations on the right or power of brokers to ship 
insurance to foreign markets ? 

Mr. McGee. As I said at the beginning, you can not dam up the 
insurance business, and there is always two ends to it; so that if 
there w r ere legislation of that kind it would simply mean that the 
shipper in New York does not do the insuring; the consignee in 
London does. So that in that way it would not be practicable. The 
only thing I could see, speaking offhand (and yet not offhand, be¬ 
cause I think we have, all of us, given it quite a good deal of thought), 
the only way in which that can be reached is through the question 
of taxation and regulation of the exporter of marine insurance. 
And yet you are dealing there with an exceedingly difficult situa¬ 
tion; because if you say that the insurance broker shall not send an 
order for insurance to London or to any foreign market, the broker 
can keep within the letter of the law, because he can have the mer¬ 
chant write a letter to the broker’s correspondent in London so the 
broker has not done it. It is a difficult thing to get at. 

Mr. Kincheloe. You spoke a while ago of the Navy placing for¬ 
eign insurance. Was that upon ships built in American shipyards? 

Mr. McGee. Not in Government shipyards; no, sir. Vessels the 
Na\y had contracted for. 

Mr. Kincheloe. You mean contracted to have built? 

Mr. McGee. Well, in such cases—the Navy, for instance, has con¬ 
tracted for a number of vessels to be built at the Cramp’s Ship 
Yards. I do not know if any of that particular insurance has been 
placed in England, but I think it has. But that is the sort of case. 

Mr. Chindblom. That was not for merchant shipping? 

Mr. McGee. No ; for naval vessels. 

Mr. Kincheloe. The Government did not own those vessels until 
they were completed and turned over by the contractor, did it? 

Mr. McGee. They were built on the cost-plus basis. 

Mr. Kincheloe. That is true, but would it be the Navy’s busi¬ 
ness to insure that vessel while it was being constructed? 

Mr. McGee. The Navy supervised the cost of it, and the Navy 
passed on the price to be paid for insurance. 



112 


MARINE INSURANCE. 


Mr. Kincheloe. But what I am talking about is, does the Xavy 
Department itself pay that premium? 

Mr. McGee. The Xavy Department pays it; yes, sir; through the 
cost-plus basis, and, therefore, it supervises it. 

Mr. Chindblom. It is part of the cost? 

Mr. McGee. It is part of the cost, and it supervises it just the 
same as it says where the contractor shall buy his anchors and 
chains. 

Mr. Kincheloe. In the case of the construction of that vessel, 
before it is completed, to whom would the money be paid ? 

Mr. McGee. To the Secretary of the Xavy. 

Mr. Kin cheloe. Is the policy made direct to the Xavy? 

Mr. McGee. Xo; the loss, if any, is payable to the Secretary of the 
Xavy as his interest may appear. 

Mr. Kincheloe. That is true, but I am talking about the face of 
the policy. Who is the insured? I am asking as a matter of infor¬ 
mation. 

Mr. McGee. 1 understand. As a general thing, it is taken out 
jointly in the name of the builder and the Xavy. It is taken out in 
the name, for instance, in the case of a vessel building at Cramp’s 
yard, the insurance would be taken out in the name of the Cramp’s 
Shipbuilding Co. for account of the United States Xavy, and the 
loss, if any, payable to—both names are coupled, the shipbuilder 
and the Xavy. 

Mr. Kincheloe. Payable as the rights and interests may appear. 
Of course, that is true. But don’t you make the same kind of a 
policy to the owner of a vessel and the mortgagee, that in case of a 
loss that it is to be paid to the mortgagee as his interest may appear? 

Mr. McGee. Y es. 

Mr. Kincheloe. Xow, as a matter of fact, that is not the Navy 
directly doing it, is it ? 

Mr. McGee. But it does happen the Xavy has a good deal of voice 
as to where the insurance will be placed and at what price. 

Mr. Lehlbach. And as a matter of fact, does not the Xavy direct 
where the insurance will be placed, absolutely ? 

Mr. McGee. Yes, sir. 

Mr. Edmonds. That was not done before the war ? 

Mr. McGee. It was done before the war. but they did not pay just 
the same attention to it. Before the war, I would say that the major 
part of every vessel built for the Navy’s account was insured in for¬ 
eign markets. 

Mr. Edmonds. Before the war ? 

Mr. McGee. And now, too. 

Mr. Edmonds. But they would only insure a Cramps vessel, if 
Cramps took a contract with the Navy to deliver them a vessel, the 
policy was simply made out in the name of William Cramps & Son 
before the war? 

Mr. McGee. And the policies of insurance were filed with the Sec¬ 
retary of the Navy. 

Mr. Edmonds, lliere was an interest clause in there; that is before 
the war and now, too ? 

Mr. McGee. Before the war and during the war. 

Mr. Kincheloe. What percentage of Xavy ships or other craft was 
insured in foreign companies? 


MARINE INSURANCE. 


113 


Mr. McGee. Those that are navigating? 

Mr. Kincheloe. Yes; or not navigating, both ? 

Mr. McGee. I have no means of knowing that. 

Mr. Kincheloe. Of vessels navigating? 

Mr. McGee. Vessels navigating are not insured as I understand, 
but vessels under construction are always insured. 

Mr. Kincheloe. What percentage of those were insured in foreign 
companies? 

Mr. McGee. I have no means of knowing. It must be a very large 
per cent. 

Mr. Kincheloe. It must be a very good reason. You know one of 
the reasons was they could not get insurance in this country the same 
as a whole lot of people could not get marine insurance. 

Mr. McGee. They could get it in this country, but the brokers, for 
competitive reasons, sent the business to England, and placed it in 
England for a long period of time; and the American companies saw 
so little of it that the American companies stopped writing it, and 
then it became necessary, if you wanted to place it at all, to place it in 
England. But now for the last four or five years, the American com¬ 
panies have evinced an interest in it and a desire to have it. 

Mr. Kincheloe. Do I understand you to say the Navy does not 
insure any of its ships afloat, battleships or anything else? 

Mr. McGee. Not as I understand it. 

Mr. Edmonds. They take their own risk on that. 

Mr. McGee. The Government carries its own risk on Government 
property. 

Mr. Chindblom. It does not insure anything? 

Mr. McGee. It does not insure anything, not even its buildings. 

Mr. Kincheloe. Is that under the same system as the Shipping 
Board insures theirs? 

Mr. Edmonds. They only carry a book account just like many 
private concerns carry a book account. 

Mr. Kincheloe. I understand they carry a book account, but I 
mean does the Navy do that? 

Mr. Edmonds. They do not even carry a book account; they just 
say the percentage of risk is not as great as the insurance would cost 
them, so they take the risk. 

Mr. Chindblom. Now, Mr. McGee, during the war, while this in¬ 
surance has been placed upon vessels being built for the Govern¬ 
ment, do you know who has handled that insurance as a broker? 

Mr. McGee. The Naval vessels under construction? 

Mr. Chindblom. Yes. 

Mr. McGee. There have been three or four different brokers. 

Mr. Chindblom. Not over three or four? 

Mr. McGee. Well, there are four names only that occur to me. 

Mr. Chindblom. Could you give us those names? 

Mr. McGee. Yes. Mather & Co., of Philadelphia; Johnson & 
Hio-gins, of New York; Frank Gair Macomber, of Boston, and Brew- 
ster-Upton, Inc., of New York. I think those four have done more 
Navy business than anything else. They are the four that occur to 
me. 

Mr. Chindblom. You are a broker? 

Mr. McGee. No, sir; an agent. 

Mr. Chindblom. You are not a broker at all? 

160770—20 - 8 



114 


MARINE INSURANCE. 


. I H B jcrfl 980ff i .32*0 oK All 

Mr. McGee. Not a : brokerI am an ; underwriter. 

Mr. Chindblom. You do not, do any brokerage business .at all ? | / 
Mr. McGee. None whatever, Xiahe hosiims^i thah ii^-brnnghtilo 
me;, I am an underwriter,; X am a ■, company man. ,7 . :{ . ; ;y ,}f :l y 

Mr. Edmonds. It might t be of a little interest to the. committee tp,; 


know the 1 modus operandi Qf ; Lloyds- I do,not/know;whether,the 
members of the committee know it or not, but I think it possibly , 
would be good to put in the records here the. Lloyd$’ 1 insurance end. 

I do not mean their registry end, but the insurance end. 

[ Mr- McGeb- Yps. . iBy the, word L.loyds .layman ,m ygry y {api^ ,to 1 

be confused,; because there are two or three things in which, thm 
word Lloyds is, used-;i i In/the; msujcan^q,sensfy..Lloyds. js., news,-,. 
gatheringInstitution and,,a, place where individual undojgw i ’i^ s 
meet. ;The' .corporation maintains its big establishment; they admit-, 
me?,nbers to various classes. What is known as an underwriting; 
member is .a man. who acts as an.insurance company all, by himself,. 
Off:he may act for a group of other individuals. Each individual 
and each underwriter must, give certain guaranties.-to tbetporpqratipnj 
of Lloyds asito hm solvency. Nowt Llqydft ;the< cpypoffation,,assume^, * 
UQ' responsibility whatever; and tabes; no [ part] inythe:aqt§ L ob fb?e indi¬ 
vidual. St>, W-heiii iyiou; icome tpi .dismiss! Oil .rftier, to; the; maftuff ; ot ,ap { 
insurance being placed at Lloyds, you mean that it is, placed ,lpy some 
of these groups of individu^-that Xiayen r de^jat-Xilpyda AW* jtiranh$ct 
their business, tthetmi .No* one -but, an ladmittpdimembei/can dran^ct 
his business there; no one but an admitted member of Lloyd^llWj 
use a policy of insurance,(which*bears the insigma/tofiLloyfe ,\] 7 . 

Mro LtatBAci*., Right .therte,. is the^ membership! in .Llqyds^ffe- 
sjtrictedd'O individuate or nangorpofahionsib^^onje.mniPibersiyii i tW. 

Mr. McGee. I believe underwriting membership in Lloyds is ip-* 
stricted tbi individuals. i; Underwritings members , rff LloydSamaymot 
write for a corporation; they m&yhvrhmXofphly4udiiyidnals*;tiQ?X'{ 
^orations; >suoh Us. * insurance companies- are,. admitted,,a $-1 ^soci^te 
members of Lloyds simply for news gaflimibg.' a bd other, mmilup 
Services.; t :What wo'cspbakvofi as; a cLioydm agepft thrphghout, ])me 
worldii& -a man who; (is In nutesense a gatherer ,o£nnwSf .$$■ ho jtop : pai]^ 
ings, departures, and casualties, and he also acfa,$s 1 the; njyn wbq 
ini T estigatfes[in.the, ca^e oX;1qs& aud >dmwug£v /o/ .v.o.nnihnO ;i\f' 

n Mro thiijtDiwQMj (Cdnnanyjdndividualuiw n lbm;[^insm e a risk-W-lth 
a corporation? 

Mr. McGee. iBe, may,,u.Nowi*(whetra,.-,^rokei'-.send^/an 
order to London he sends it to the insurance Jbffpker iu.Xopflpm ^ncl 
the insuiranbe broket gm& tn Lloyds,, and-gqes oju tbe npqff^us.^hev 
call it. No one but a brokeivwho has ibeen admitted, fo membership 
at Lloyds may go on , the floor to place a risk, '{Bpythat the/Lloyds 
broker then takes his,littlerpiepe pL papep^aud gpps l JfrpmT^ne 
desk to, fahotheri■ a’ndjiOfflers dds..rdqk to eac<h|one pf dhosy >individual 
underwriters, I: have forgotten the mumbqr* hpf/theffp fLje ^ laff^e 
number of i.ndivfiditaIs, , Xt : Jis;,libf a gre^t big^9pJio%ni 
(schoolrooam with .something like four; or schpja^jsittjng 

at desks quite similar to those we used to Use at school exceptiiig 
they are double desks with twp.-jpen .fapmg .qach. * 

Underwriter on the one side and anotherJVXr\: XTjl^erw^ijt^v- ojj> /the 
other side. The Lloyt}^ pd 

he may later on offer his risk to that man, and each one accepts or 


MARINE IN 3 JTR^ ; 0 f t , 


it ;, 1 ,FpR the iMiira^® onee, plaeed ot declined,. 
no connection with it; it is the individual purely. I think 




JLrlQ^/ds .JlflS 





n rwnmr* ~r? rmiry \m~th /m v rAvct (r'Vr - > 

irrm/un™rio-OTior^ffifeMS fPffl' 8ftl® 

names each one a single individual htamd 

I, "ne man refuses to pay a loss. that does not bind anyone else.. 
It one man pays i£, it does not bind anyone else. T/he^j.tjb^fp 



k ; •, ; 7 r—o r Ti';y <'T 'fj.nruunr m^nvr^fo . 

&Mi ajU jo.itpm Vo 


>• t»v t .rrrcrr 'uij i:o laoui so 




0,7 vn r■ nvoni 1 w 4 ^ p r'KS lV/ ^)Twi 

l mm ^wmmhtei&mmPitimw m U > 

Irmo Qnrl f rmro ic rrorwavcv I \*xr cnmn rfloann iwhy a mnprlifjirm 


is - not b Ini lone,' hhdther'e'isgeMftM'SftfiW 

fi -id boiiiaa .unirlt vJno oriT .f.azouait riM 

tyWna.jftt 



'svh^l'WvMffitk bob ysiJT 
.a ■ ^himpWr:» 1 ft 1 '»4fellt]< 1 
m n>iv .lork, some tljiBf 

9h m %9MfifV. a wr»Mfel 
mm mifmat wm# 

<# ffi s %m§w,yh 




sp/c) mo aac'iso yy/tl osiinood 

We have had. at various tomes. 

nM&MWu&Vtyi Pmm uw 

mds ot London. ..^e ha ve had a number 


W'Tiirr. TXTivvY'iJt/yf rtUroR r.^r r .71 T mn 
.tioil;ot individuals have combined together, 


#p4cd s f©4w J i 4Hfl% ! i OTW - 

w4PHt/Wfiy^|oMMvt l f>; 


.licy, and they wen? not a corporation; they 

fit .wnuif .Ufa-i.s^aJtw' 3 tepd^wm 



oaad 

. iM 

^ mio flojs-e him. Jiataif. mhod 

..,. ..... .,..« w jfl)iWM Mi }l%4 

ave the samfe > ^|^^li^p^ a a^ ) ^ai^ 


mdi^^oj# fepM? bftyft 5#j 


m'fiWjfffi W procedure for getting rertllicates and authority from 

.h’l 1 jn t Em S Yor] a< " 

yjfej 


IWM% ’ 

Mr. Ivojioxns. Would there be an advantage li i 


■tfuFm. 


116 


MARINE INSURANCE. 


Mr. McGee. Of no practical advantage, no, sir, for this reason: 
Lloyds of London is a very old institution. It was started when 
there was no such things as insurance corporations. It built up a 
name and it built up a prestige. The corporation of Lloyds exer¬ 
cises certain jurisdiction over them. The corporation of Lloyds 
exercises pretty much the same sort of jurisdiction over the under¬ 
writing members as the insurance department of the State of New 
York exercises over a corporation transacting business in the State 
of New York. That has been a growth of time. Up to five, seven, 
eight, or ten years ago. Lloyds did not supervise some of the financial 
functions or some of the operations of some of Lloyds underwriters; 
but they have instituted reforms in that direction called out by 
abuses in their own country among their own people. 

But the great trouble with the Lloyds system in the United States 
is that so many of the so-called Lloyds operated in such a way as to 
give the Lloyds system in the United States a very bad name. It 
is not as easy for an underwriter or a broker to sell, as we call it, 
a policy of a Lloyds, as it is of a corporation. Under the present law 
of most of the States, there would be that same supervision of a 
Lloyds formed since 1909 or thereabouts, when the law was changed 
in New York. And there is nothing to be gained. Now, if you were 
going back to the original process, when any one was free to form a 
Lloyds or a set of Lloyds names in New York, you would have to 
couple with it some supervision that would prevent them from falling 
back into the evils that then existed. 

Mr. Edmonds. The only thing gained by it would be, of course, 
the more elastic working of the premium rate. 

Mr. McGee. There would be no gain from that, because the New 
York Lloyds would have the same overhead expense as a corpora¬ 
tion. There would be no gain from that source. You see, the London 
Lloyds or the Lloyds underwriters in London have an advantage, 
because they escape our taxes. They deal only with the broker in 
London, and he only pays the broker a low rate of commission or 
brokerage. They run their business in a very different way from 
what an insurance corporation, either in England or America, would 
run it. The Lloyds underwriter very frequently has little more 
than his desk room for his office. He bunches his business in a 
different way from what we do. He writes in small units. A 
Lloyds underwriter, as a rule, probably would not accept for his 
own risk more than £50 or £100. So the practice has grown up for 
one underwriter to act for a number of individuals, who also them¬ 
selves are underwriters but take no active part in it. The man who 
becomes an underwriter for a number of individuals may sign a 
policy for anywhere from 5 to 20 names, each one of those names 
being listed, and each one being put down for £50 or £100 or what¬ 
ever it may be. Now, you can not very well deal on that sort of a 
basis on the American market, I think. 

Mr. Edmonds. To change the subject a little bit, let me ask } r ou 
something else: When this war started wasn’t there an attempt made 
by New York underwriters and American underwriters to form 
some kind of an organization, virtually a monopoly, so as to handle 
the risks in a united manner? 

Mr. McGee. No, not in just that way. I think what you have in 
mind is this: There was a state of intense competition, due to the 


MARINE INSURANCE. 


117 


brokers shipping the hull insurances to England. We American 
underwriters tried to save it for ourselves, some of it. We found 
that the question of rates was a very important factor. The English 
•underwriters were giving, and they are giving to-day, American 
hulls cheaper rates than they are giving English hulls. English 
underwriters have advanced the rate on English hulls twice within 
the last three years, and each time by 10 or 15 per cent. The Ameri¬ 
can hull business has been very unprofitable to the American under¬ 
writers. Our own office has not made one-tenth of 1 per cent over 
a period of 10 years of what the London office has made. We have 
done it largely from patriotic motives, and we have also done it 
largely for the purpose of keeping in touch with our business. The 
English underwriters were losing money on the American hulls, just 
as we were. The English underwriters, as individuals, took up with 
their representatives here in New York the question of raising the 
rate. The American underwriters said, “ We would be very thankful 
to see the rates raised, so that we could at least come out whole and 
perhaps make a little money out of the business.” That thought was 
carried out in London, and the London underwriters came along and 
said. “ Why, we would be very glad to go into some sort of scheme 
of that kind if the American underwriters will not absorb all of 
the business; if the American underwriters will guarantee that 40 
per cent or 50 per cent of that business will be placed in England, 
the English underwriters will be very glad to cooperate in some 
movement to place the business on a profitable basis.” The Amer¬ 
ican underwriters replied, “We have, unfortunately, jails over here, 
and we can not go into any combination which would guarantee that 
anything could go to England or to any other market, or that it should 
be placed anywhere; that that business would have to seek its own 
market in the natural and the normal way.” 

Mr. Edmonds. How long ago was this? 

Mr. McGee. That has been going on for the last two or three years. 
The Englishman replies, “ Well, if you won’t guarantee that 40 or 50 
per cent of the business will be placed in London, then we will do 
nothing.” So that is the position to-day and for that reason the 
American shipowner to-day is getting his insurance for less than 
cost and he is getting his insurance for less than the amount the 
British owner of an identical vessel is paying for his. 

Mr. Lehlbach. If I may interrupt you at this point, it has been 
suggested that the committee take a recess until 2 o’clock and con¬ 
tinue this afternoon and that we might still continue this hearing 
to-morrow morning, after the session this afternoon, because 
there is nothing that would interfere with it. And, Mr. McGee, 
if you can, at the afternoon session, I would like to have you 
touch on the subject that I suggested, namely, where your com¬ 
panies get your information on which you base your rates—whether 
from the American Bureau of Shipping or the Lloyd’s agency or from 
what other source—and the manner in which that information is 
gathered by the source on which you rely. 

Mr. McGee. That can be done and it won’t take all the afternoon 
to do it, sir. 

Mr. Edmonds. And, Mr. McGee, I would like to have an expression 
of your opinion on Mr. Hurley’s plan of Government insurance of 


.;■!')7 fa/ I .'fXIUAM 

MARINE INSURANCE. 


1 if 8 

^ ... iKjnii 7 T') f '. to noiigoop 9 fll tisifI 

iru*)^R&f 5 ^ ( ' M 5 fr* • U ®§ti f$ 5 fc . , -j >rf > [niii ; ejlrtv^harf- 

MpF paws 8 ft m - if recess was laken w 2 

nft ad rfarlgnCd no ahn orii boomr/br sym! atoHrvrfjiXfn 
-riornA. 9 fIT .tria*) roq <11 *ro o bar, .aTfi9Y o*mfi tan! ed) 

-'lofrna nBori 9 xnA odi oi gldr,iRoacrnn vaoy rmcf gfid 389 fli 8 ucf [lad neo 
• i-. /<Tw- Aclo^k. ^PHIR 1 *!ivm •HfO .a-f*Uf-[7/ 

, f ,' ; ; / ! . j STATEMENT OF Mfc.W. JpMcGElUContinwd,!' J' .. 



lipping Board. Section T provides that the board 


OlV'in v - L^ e OTffoK U mffr' H e ttT f) HT' C 1 TfO■ / ’)U 1 ’ J Ti <; A P 97 r aA nf I 7 P ■ tll r Up 11 

-m&M. %, PffFPm i mm 

pari of the vessel represented by Ins lien or interest, or is it not the 

I I Pi w :POT,c|iaser > wpsplf. Wl, R r f < ?, 1 i l I e i ai^.R&y.pW, % jipuranp 

fhfc m M^^ e n i T°^i-HlSWwii ¥ I W % tse 


JmM 

nwefsti ?©. ..,, 

policy of marine_ t * TTnnT'f r-i a i-1 on • a - rn 

owner, and it is the owner's duty to set' that if is insured. However, 
jn general practice, it. is the duty of the owner of the ship to provide 
the insurance tor the mortgagee or whoever takes the risk. 

Mr. Lr.m.nAcir. And there is attached or endorsed on the policy a 
statement- of. the mortgagee's insurable interest lawfully to be paid 
tolvim snch asit mavhe? 

air. M <( x ee. ^Something of that nature. 

Mr.* 'IbEHLBACH.'iDo -you c^rje ’ to 1 cpmihent: 6 ( ii 1 tjlis ! p^viMbn that 


t , .tiff Gtfvernfli^t 5>M% 


'MMSSW&MWl f“® plf 

Mr. McGee. "That would depend a little hit. I expect, on the tern 



MARINE INSURANCE. 


119 


I believe that on account of that situation it would have been im¬ 
possible to have insured 'wooden ships'. m?d -t m . 

Mr. LeUlbach. Because of theiula£k : of seaworthiness ? 

Mr. McGee. On/ account Of their unsed^orthineSs, the uncertainty 
of construction, the method of construction, a marine insurance 
company and a ship owner who had had anything to do with wooden 
'shipfe, whether'they- beb a rk sy fete a mer s; o r schooners, knows that it 
takes a Ship bUild^r to build a"ship, and it takes aJship carpenter to 
Inlild a ship: a house'carpenter or joiner can not do it. However 
^ood his 1 intentions may be, he does not know bondto do it. 

Mr. LehE'EaUi!. Mt/ McGdeUaS' far 'as- this applies\‘to ships that 
are, purchased by private owners from the United States Shipping 
Board, the presumption is almost irresistible that none would buy 
' a 'ship unless it would stay afloat. o< yno-film 'a •• ■; ■ i '' -odUmd 

Mr. McGee. True. - 

’ Mr. UErrnnACii. CohseqUently that Objection to the purchaser ( Be- 
ing' able to : pyOCltre insurance 1 Would not be a pradtiCkl objection 
under- such circumstances. 11 . ' ’ / c w i 

! Mr. Md(5rEE. It no lotiger obtains. 

"Mr. LettEkaOi*. Therefore there is no' special reason why the Ordi- 
' nkry ! CUstOtri; should f hot be followed of letting the customer insure 
• "the bokts * and allow such 'portion Of the VpiSiif ance. tb‘ the seller as 1 he 
1 iday detain^ reasoivoi 5 a 1 ptlrchar'emoney mortgage! 

MK It is the more business-like procedure. 

' 1 Mr. LEHEnAOH.. ' another tiling. Section 7 ! goes 1 oh to provide 

that if any lessee or purcha>er from the board is -unable to or fails 
to pi-octire such insurance on his interests, the'll the board may in- 
'Smle ' ;4UCh' interest, N6tv, : ' thefe .be Some instance,' if the pur- 

“Teaser is 'Unable' tO prbcUlh' ihsuraney, 1 wdicfe tile purchaser should 
have his'imerest inSUled for him. B'Ut if lie Siihply' does' not procure 
5, 'insiiraheec if • he'HdilW'fc)' do ' SbJ ' hdiy should the Shipping Board 
' insUBe iidt dniy ’their 'OWh but diis 1 interest 'to the extent 1 Of piacihg 
! "Blit IhSUrance''in the iparket Where it beloligs? ' 1 1 1 r ' " 

■ Mr: MOGeU. 'IdWqiffistioh of'the iftshraUde of'ahull gbes back to 
yH HMn ’UVhdaipentiil' prihcipiesJ f,) Thfe ‘ rate Of- premium bn the hull 
"'basiS r i^ nof basfed ‘h^oh'anyTneasUrenleiltpit' is lately Based Upon 
the construction and bksbd upon the 'ownership and the management. 
Two vessels identically alike sister ships, one under one manage- 
‘'' hieht ahd ! another hinder another,' blight 1 pay and Jfrec(uehtly do pay 
quite different rates of premium. One owner is an efficient manager 




120 


MARINE INSURANCE. 


insisting on its being insured in order to protect himself; that sell¬ 
ing a ship in that way would place some insurance on the market; 
more insurance than could be taken care of in American companies. 
Now, their idea was that so far as their interest in the vessel was 
concerned, they would insure it to protect themselves. That is, if 
their mortgage was for 75 per cent, 65 per cent, or 50 per cent on the 
vessel, they only insured the customer to that extent, eventually 
carrying themselves out of the insurance business as the mortgage 
was reduced. Now, is the insurance situation such among the 
American companies that that would be an advantage to give the 
companies time to grow and take care of it all ? 

Mr. McGee. I think that was the purpose of it? I am a little bit 
familiar with the conditions and recommendations that led up to 
it, and it is what I had in mind when I was speaking before. Last 
October when an investigation was made with respect to the insur¬ 
ance questions, then the matter of insurance carried with it the 
necessity of taking care of these wooden vessels. The recommenda¬ 
tions made at that time were that the insurance could be placed 
with native American companies, and by native companies, I mean 
purely American companies, and not foreign companies admitted, 
in order that they might gain such experience as would enable them, 
at the time when these ships were coming back or coming into pri¬ 
vate ownership, to intelligently make rates and conditions for these 
vessels. Now, at that time the recommendations were confined to 
American companies, as distinguished from admitted companies. 

We were all confronted at that time with this wooden-vessel propo¬ 
sition, and we were quite sure that it would not be possible to place 
in the American market with satisfaction anymore than something 
like 25 per cent of the value of those wooden vessels. You see, they 
w r ere running up to about $600,000 or $700,000 in valuation at that 
time, and to confine that insurance to American companies on ves¬ 
sels of that character, it was doubtful if there was a market for 
vessels of anything more than $150,000 or $200,000 in value. Now, 
both steel and wooden vessels fell into the same category, because 
we could not make fish of one and fowl of the other. The recom¬ 
mendation at that time was that on account of the growth of the com¬ 
panies and in order to give the American companies experience to 
deal with vessels on a commercial basis, 25 per cent of the value 
should be placed with American companies and the Shipping Board 
carry the remaining 75 per cent.- Now, the situation has been changed 
very radically since that recommendation was made. The w T ooden 
vessels have been pretty well eliminated, and now it comes to the 
question of steel vessels. Steel vessels range in value from $500,000 
to, I think, $1,500,000 or $2,000,000 in value. I think there were 
some exceptional cases at one time. The open insurance market in 
New York—American as well as admitted companies—I am inclined 
to think, would come pretty near supplying capacity to take care of 
$500,000 or more than that on those vessels. But that is one of the 
things that you can never be too sure about until you go into it and 
sound out the market. 

Mr. Edmonds. But you think there is absolutely no advantage in 
passing a law of that kind now, that we should allow the purchaser 
to place a mortgage on the vessel without any restriction, whenever 
he pleases, without any restriction by the Shipping Board? 


MARINE INSURANCE. 


121 


Mr. McGee. I believe lie can clo that, except, possibly, in the case 
of some of the higher-priced vessels. I believe some of the tank 
ships run up into very large values, because they were built when 
tank construction was more expensive than the construction of the 
hull. 

Mr. Chindbolm. Does not the cost of the vessel determine the 
insurable value? 

Mr. McGee. It should, but it does not always do so. Its insurable 
value is based generally on the value of the vessel as a selling propo¬ 
sition in the open market; but if you get a vessel of a peculiar con¬ 
struction, that has a peculiar value to her owner, you may insure 
her hull on one basis and then insure her again outside of the hull 
on the basis, of risk. 

Mr. Edmonds. If we were to pass this bill the way it stands now, 
and the Shipping Board was to start in and insure the cost of the 
ships, charging the cost to the owner, would that in any way foster 
or build up the American insurance companies? 

Mr. McGee. Yes; because the business makes the capacity. 

Mr. Lehlbach. That is, if the Shipping Board did it itself? 

Mr. McGee. Yes. 

Mr. Edmonds. That is what I meant. 

Mr. McGee. But if the Shipping Board adopts the policy of plac¬ 
ing all the insurance that it can within reason with private compa¬ 
nies. and merely takes what can not be placed properly and equitably 
with private companies, then you do foster American interests. 

Mr. Lehlbach. Now, Mr. McGee, you spoke of the fact that there 
ma} T be exceptional instances where the whole insurance on the hull 
could not be placed in the open market on a boat worth $1,000,000, 
or something like that, or for some other reason, if the boat was 
exceptional. Now, would not that condition be met by making sec¬ 
tion 7 to read that where it is impossible to place the insurance in 
the market, in that event the Shipping Board may insure with itself 
its own interest in the vessel? 

Mr. McGee. It certainly would. 

Mr. Lehlbach. But only in the event that the insurance can not 
be placed at reasonable rates in the open market ? 

Mr. McGee. It certainly would. 

Mr. Edmonds. That would lead to the Shipping Board insuring 
all the insurable ships and the market taking all the good ships. 

Mr. McGee. That is why I pointed out in the first place the rea¬ 
sons for making the recommendations. Of course, it is an absurdity 
to have the mortgagee acting as his own insurance for the protection 
of the mortgagor. 

Mr. Chindblom. Does it not happen, in reference to vessels owned 
by private individuals or corporations, that a vessel may be so con¬ 
structed or may be of such value that the owner is unable to pro¬ 
cure this insurance, and then he has got to carry it at his own risk? 

Mr. McGee. That is true. There are certain vessels that have been 
built in Japan where the valuations have run very high, so that the 
Japanese companies—and there are quite a great many of them— 
have absorbed every yen they could of their value, and then they 
have gone to London’ and they are actually coming to New York. 
The insurance market—what we might call the capacity of the in¬ 
surance market—is as a rule based upon something like the normal 


iW 


MARINE INSURANCE. 


condition;; when we meet wjth an abnprmal condition, as we, are 
meeting it to-day, private capital can not be expected to go beyond 
a certain point—beyond what they can see as a lasting business. 

Mr. Lkjilp.acji. Now, would you touch on the'topic that I sug¬ 
gested bcd’ore recess—the source of inforuiatforf liphn which rates are 
base^-aMj with respect to the American Bureau of Shipping,, ine 
Lloyd agencies, arid any 1 suggestion with ferer&ri^e’fb ' br^oging a 
^system of .uniformity into practice? . ( f i , [ • , 

My. 'j^j'GEE. Tlfe "average underwriter—I say the E^Verage utider- 
( >yy^yjibiit they all do it. The underwriter leases Ins'ratesprimarily 
, ,upcj>p Ijis eXpevieijice with an ownership,,a trade 1 , 1 ahd a route. 1 Now, 
it con^ep an indiyidual vesseTwe nhijst have sofhe ^tprt of in¬ 
formation as to the character, file physical character of that vessel, 
yiiyd her physical condition. Now, as the Lloyds Register has made 
for itself a very enviable reputation, it has made that reputation for 
itself because its management is very largely in the hands of under- 
' A —— J-t-jKLJiO-liJU . extent. 



is 

of 



^eaL.^iyp-owhing 

country, and Lloyds Registenha^ classified aR thjejgreat ships. There 

.^a^.^sqogtepj pr, later yiitp Xiioyds. , So that Jdpyds, ha ; s become the 

s, in, the 

a»i.i JW u « . y should 

-iturn first to Lloyds Register. One thing that this country lacks— 
f 0t3TO<Wl \t9V- (R 1 ^.pfiilclitjg; tip 
> ,pf the, pn$i;i^e i^uyapep ( bjpt of. tlip ( buildipg. tip <pr t^e ? merchant, 
.marine to put it on a, proper basis, 'is the factor , of a load line. 

: British vessels all have a load line below which it, is unlawful for the 
, vessel to he loaded. It is unlawful for a vessel to carry siieli loads in 
certain periods or the year into the Lnited Kingdom; that is, during 
the winter months. bluov/ vXni&tiao ft aaOol/ i\L 

ton ■^■rh^yp-.wthipg Wl WMry'f ANojy, an 

underwriter dealing fxyijth , ,Llc\ v 4ft RpgMph Jlppks ,VU> fpid, sep^ \lipr 
physical characteristics, her p l hysjLfp $ ) gi a)msgp ? but| thjat onjy relates 
•o[Tpffph if ,youM9b4p4fflf'frp}hp^rance- 

an updeimiter.yn waking bp^. hippafps uppn, the physi- 

l cal construction, the physical condition as shown by Lloyds Reg 
V jister .m hy the American Bureau of Shipping, which is growing 
^ better and better all the time and becoming more and more the stand¬ 
ard of American underwriting, because American, Jyulls; ar,e, growing 
fyj#7^uipbeg Y ]NqA*uW9 of 

ownership is a very important thing in making up an estimate of a 
•o3hip.f JEhftf)%WPdpfj$l4ppi$g fr ^pd^m^yjy^ars. 

past, has, bpep ;i ahoyif - as ( gop{i 5 a !; ,standayd j^s, we^J^ye/Tad; py ; Tlyis 
n^ppntry for the wooden ships. 

end LEppB^pp[ 4 yRighf beyp, JjfojM^fSee^fhW^^peS j^hip: 
described in the ; book How dqes it get, in the book 2 On the appli¬ 
cation jof| the .OWPW ahddhh payment,pf,gf ee„ ,py ' c|o^ f fliy /register 
.dloofe up ships .of its.own motion, and. desqyibe thw f .n fho register,! j 
fli Mr.! McHfai. The registei^Lloyd^..Register, for instance, to a 
frlargereefttehf f thfthfany ( otheip dhe Ab^icap Buyeatgtfqpp f very !; gyeat 


MARINE INSURANCE. 


1123 


•‘-^ferttM^gitfe iV ^fet-^ifelli^esselsf^whetli^r^they; aiie cMseld oiBnot. 
!’Llt^dS' - 'Kegi^r- shbwSrth&Jstrainers 1 oyer 1 100'register; wherever 
! btfiit ! amd ( Whenever they 1 tveii buiIt; * whether 1 they ’ are < classed or? hot 
classed! • 'They* >gey ht^ thati information Wherever! th^yi; earn But 
^thdheyeh a J vefc<#i* %'d6(ntlwAtdd> lor ift iftThemoiWman practice, almost 
‘the <uMy&P^h^r&k*tie^df^r the bwPe^ /pfUhafc 1 vessel, the ^irdspeotiVe 
1 bWtt6r, 1 16 Say \ [ 4 ■ I 1 W ant itthifc^ed^in; Ooyds \ 1 Kv ant it< classed in the 
‘bureauI‘want’ it* dialed In 1 the^Xhteticahe*! Warft iticlbssfed in the 
! ‘Bureau bf VeritaS', n! defending! on• What 1 nationality /of Work the^ ship 
is ^fdfftg tb^be bh^^ed 7 in.'^Bricticftlly/ieivery'dohhtry/ has 1 it ‘own 

** "" ^ rm'-l-J bl T VjIv i'±! J..-J JZ, ( L 1 Li ^ 1 £.U 7 til'll.- J_, 



.......... _ ataeordihg do 

, the particular registry for • which it.been belected.’ 1 The^lans 
and specifications for that' ship must then be filed with’ the bureau 
with whichltWtdbe'claSSedJ JTfttey 7 'p$s& 1 ti]ten : tfie'^riitls*atod specifi¬ 
cations; and then generally ^atc'h’ifefduring 1 tlie bontsh'of Aonfefruc- 
tion to see that the materials that are pWt into h&rtnfcasure 4 p tty their 
standards. If the vessel is constructed according to the standard, 
she is given a rating which lasts a certain length of time. Now. that 
rating is, t(Pff^?Jd§rf 6 '{fcsel’s physical 

construction, physical condition, but it does not always serve as a 
1 Wilcfe foruiidorwrifihglitirposes;*‘Thdre Af e d'gbbchmany vesselsfhat 
I woiaM ! b^idtessfed.kj? ‘uQ 1 lOO 1 !AlfWh 4 ch ( lfe the f highest{raitin^ in Lloyd’s 
(i RtWistel i , ,: fed ybf ( it. tvAhlte b^tefitircly imsUifcRble'fbfi the particular 

I ffhdh* for’AVhitii ’She 1 : #US bnilt,^iid ‘thercfo^bj it£. classification' neitHer 

II liblp'fe' ii Of ^indferS 1 it 1 . (‘ (It fell CbhTefe feaCk! to the 1 pnesti on of' the* type or 
| clks^'bf ’the 1 vessel, .'tltetcii^e a ^rAat.many Vessels bnilt bn the weat 
1 'Tjakd& thhEhate’bedn 1 OlaSsUd iaS^fOO f Xwi find* tliby hkVe been biassed 
^fdrdhke servi6b'bniy! l kfid’ thby arWnoHfit foWcfeean 'seryitei. 


" :!: Mr!. EdmUnM! Dbes ! thb 4 lassifioati 5 W'go‘ down 1: thd ' vefefebagbs? 
‘ 1; ME- MAOEe!- The’ej&e&ific$tibn Mh6; for a’ ctertaitv mihnbet' ( bf : years 

WhvTTfti* ; * 1 IT? i ~a 4 -» L-i'/tiri * * -fcX-v w 



class for a short additional term of years, or they may limit her to 


: a cWtftfif specifid trade or ffit ( that blabs Of 

Afr. Leiilback. How i.s insurance on hulls usually wi 


\'ritten ( Is it 

[T .aon/riug 


^stfatly f Wfittbh by th f b : f^ear ot* l by the Voyage \ 

Mr. AIcGfj:. By the year. 

■ ( \. ! 'Air. EhAib’kns. 'Xhd ic-Xrg'o iiiyurbhce 1 is written by the voyage { 
All-. AIcGr.r. Generally by the voyage. The only exception to that 
: is' on sdm'epf f th4 Cbastw’isb Vddfes ^herb’ the' VoyHge Is' ruri sd iqitickly 
it would be impractical to insure the cargo by the \ v 6ygge. 

Mr. EdaIO^ds. It^iXihipoMble 10‘insure’fhe cargo Where’the ship 

r. 11 r,r. tV^Atvi tA'V/e 

the ! Old dominion 


insurance on the c4f’gB ‘by the yehr, 1 bit. bf cWfrsb,'thby.' Mi& a re- 
'A\ u&Ubik at th’b ! end of 1 he’/ybkT; l^rdirifeVto &b , Mfie^ carried 'in 
\}k 4^^r^^AbjVage. 

{': TSj''t^erb 'aai ! y‘ ‘i urtKbi v ^ t d t|li aLt ! c&$| It A' tench 


124 


MARINE INSURANCE. 


Mr. McGee. I was going to take up something along the same line. 

Mr. Chixdblom. At some point in your remarks there are two or 
three questions brought out by the hearings this morning that I 
desire to ask whenever it is convenient to your line of thought. 

Mr. Lehlbach. The reason I asked that question is that I am in¬ 
formed that Commander Taylor, of the American Bureau of Ship¬ 
ping, must necessarily return to New York on a train in the neigh¬ 
borhood of 4 o’clock, and it will be impossible for him to return to¬ 
morrow, and I was trying to get an idea as to how much longer your 
testimony would be to-day, in order to give Commander Taylor an 
opportunity to be heard before he must leave. 

Mr. McGee. A very few minutes more will complete my statement, 
and then I will be ready for any questions. 

Mr. Lehlbach. Proceed, Mr. McGee. 

Mr. McGee. However, I will give way to Commander Taylor, if 
you would like to hear him now, and I can resume later. 

Mr. Chindblom. That would be very nice. 

Mr. McGee. I will do that. 

STATEMENT OF COMMANDER STEVENSON TAYLOR, PRESIDENT 
OF THE AMERICAN BUREAU OF SHIPPING. 

Commander Taylor. Mr. Chairman and gentlemen, I am at your 
service. I am president of the American Bureau of Shipping. At 
the present time I am a commander in the United States Naval 
Reserve Forces, my services having been solicited before the war 
commenced as a member of the board of appraisers for merchant 
and private vessels. Later on I was named by the President as a 
member of a board to determine the prices of vessels commandeered 
during the war; and also a member of a committee of the Shipping 
Board having charge of German and Austrian vessels. From, that 
position, my other work having been completed, I have just re¬ 
signed to take effect August 1, so that I have been pretty busy in the 
last two years particularly. I am not an insurance man, but I think 
that one or two of my experiences in placing insurance may be of 
value to you, having in view the questions that you asked Mr. Mc¬ 
Gee this morning. I have been responsible to a very large degree, 
for the construction of a number of large steamers. I have placed 
insurance on the same in time gone by, previous to 1908, on vessels 
valued from $1,000,000 to $2,000,000. That was construction in¬ 
surance. That was for the purpose of insuring the contractor while 
the ship was being constructed and it protected the others also. 
Those policies were made out in the. name of the contractors, but the 
loss, if any, was payable to the steamship company as their interest 
may appear. In other words, they were protected on their advance 
payments. The same rule, I think, obtains in the Navy. That I do 
not know because I have never done any Navy work. 

As I say, I have placed insurance at different times on ships of 
$1,000,000 to $2,000,000. At that time nearly all of that insurance 
was placed in England. On one vessel insured at $1,250,000, I tried 
to give it all to American companies, and we succeeded in placing 
$250,000 or $300,000 in 25 different American companies. Another 
$250,000 was placed with Lloyds insurance as described by Mr. Mc¬ 
Gee. The policies there came just as described by him, signed in the 


MARINE INSURANCE. 


125 


name of the different individuals who took part in that Lloyds in¬ 
surance, and the balance of it was placed in English companies. 
That has been the experience in the past. But I may say, and that 
will be borne out by insurance men, that in the last four years, 
in the last three years, particularly, the facilities for placing Ameri¬ 
can insurance in American companies has very largely increased. 
For instance, I talked with a member of the firm of Bryce Bros., 
on this subject the other day, and he said that several years ago 
they had 22 places where they could apply for that insurance, and 
now they have 106 places. I think that shows not only an increase 
due to the increase in numbers but also an increase in capacity, 
One other fact came out of that conversation, that a great deal of 
English insurance has been placed in this country in the past two 
years. At the present time there has been an application made to 
some companies to reinsure American cargoes, the original insurance 
of which was placed by the manufacturer in America in an insur¬ 
ance company in London; the insurance was placed in London. 
That is a matter of common occurrence. 

Now as to the American Bureau of Shipping. That was originally 
called the American Shipmasters’ Association, the idea being to 
keep track of the shipmasters more than a register of the vessels 
themselves. That was in 1862. After a few years that was changed 
to the American Bureau of Shipping, and it was established as a 
register on the line with Lloyd’s Register, the business being exactly 
the same as the British Lloyd’s Register. For many years it was the 
child, so to speak, of one insurance company, and in consequence 
of that fact it did not grow, because all other underwriters took no 
interest in it, because they felt that it had no interest in them. 

Mr. Lehlbach. What company was that? 

Commander Taylor. The Atlantic Mutual. In 1913 and in Janu¬ 
ary, 1915, and again in the latter part of 1915 there were three sepa¬ 
rate attempts to combine the British Lloyd’s Register and the Ameri¬ 
can Bureau of Shipping. About Christmas time, 1915, I was 
approached by a friend of mine. I had been retired from my ship¬ 
ping business because I wanted to spend the rest of my life in com¬ 
fort. I was approached to see whether I would take charge of the 
American Classification Society, if I would consider it, and I said, 
yes, I would consider it. During that same week another friend 
asked me if I would not attend the reorganization meeting of the 
American Bureau of Shipping, and at his insistance I went down 
and was made chairman of this reorganization committee. At that 
time they had been conducting negotiations with Lloyd’s, and I 
found that in this American reorganization committee there was 
a difference of opinion as to what would be the result if there was 
this combination with Lloyd’s and an American committee appointed 
to represent Lloyd’s. One or two of the members thought that the 
American committee could take up any plans of American ships if 
they were passed by the American committee and the ships could 
be insured in Lloyd’s, but some of the members did not understand 
it that way. They thought that the plans would have to go to 
London; so I asked Mr. Scott, the secretary, who was in the country 
at the time to meet with our reorganization committee, and he had 
two other gentlemen with him, and I asked them this question, put- 


1Q81 MARINE 'INSURANCE*/ 

ting itl.upltb thdrn/in this Way): Stipp<iSiei^in^mei*icAnina,v^l| architecti 
designs; a; ne\y{ style iof i ship alnd your ; American ;Cbmi!nit}teQ} formed 
under Jttiis. coalition,! passed „ die | phi ns: if nr r that; (Ship* [ i Will Lloyd'S,! 
in LondQny iaciGeptMthe (deoisilon. of ithe> Anaerijcani committeei orl Will/ 
the plahs: have! fo gb to London (?) . Mr.! Scott : Responded jalt unde* that r 
the plana .would hkve; to got to Lon4.o%)alli;the)ipl^nsi i would) ha Vie jtQ > 
go toLondofiL lo nnfl adi to ladmam dtiw i> >>I 1 o t 1 { 8onetaai io r l 
* Welh ;thati really .ariswjefed ■ thelimrpodesi oil the,-(inter plow r bhjt /Jo 
ahkied. liim ftwoi dr; fthnee) o.theifcqjubstions) J ust) to //let, hiki down feasy^t 
so to speak;; The treorgaadizatioh doflhttiitte^'jdedifledla.t /onjco thnt/if i. 
that was thercase-that there) Wouldnbe aid j use/ of j joinimgiwith jLloydeb 
At> that > time J had ;hjo.officiali comaectidn With/ either of .them,* I )They) 
said4 we^vitligoi oni Und> establish (our : bwnochissihcationj society i andl 
reorganized <bhte; Arperican nBuioau! of;Snipping;! andj as 1 a u/esult) of/ 
that dis©ms&ri^dn)Be r bruaryf 29 ,fL^wasoaiadeipresident oifi tlienAmerir- 
cani Bureain bf . Shippin gi and rif ;I! tod i knbfwn (What!I was goirig to, 
gotthroulgli! fobthd qiest/two/jor sthreie ydars/ilidoubt /if nry patriotism; 
would have carried me that faiuo jQn> Maanhfd9d^t6J^Mthe^fAlllIerieWfi , 
Bybeaiii’iof Shippaiig had f hydf'cXttaiva isiir/veyoirsj! 7 Thfey< .had aolfet 
of not i ‘ ekcktfeiivee) klirvey^sHthi/oiigkout; i the/! &noted i fsibgtesa f anjdo (in > 
otlber/parth of)the)worlds but[they only ihad/hyb fex-cJluslive iu-Cveyprsi 
ihathBdKewvA,drib office. vXhec tot W p a.y "bdl h a nelu dig (the. -sal try; i of i 
thea piiesidekfc; ias deteif iiihed affi that (time, i including: altrioffice/fexb) 
pdrises 7 , )was ‘at Wb© ira/tfe mfi $2$jf)iQ0) yjfcear i anrfdmf t i Ah rtlie;. present; time i 
wd ih&ve Jahieastv tSoi (teoiniicalihiehl hi (>outJsiir inydrs’i 1 department! t 
Wm dup«©/ik#) officers /throughout the < UnitecbiSt ates.. >[ /Wpe have, uni >$Mo 
pendlituto/payrolL i of fsavdrol I Imndrcdn thousand* > doftl&rs \ soi'tltajtiJWh) 
have.groitmsoeimvlnitfin Ithd phSt;fwOlytea/rsJ j A$j /avniatferi (of fantd 
most of our work has befejnr;dboneviiyithq/past)MW years:n iWllen!We 
comniendedp /ii£ iMardh,. MUfij 1 the) Aihetioalh 1 Shippings Bureau, had 
only;a8epell oent/ of otlhe. A’i!ntDieanebmiltid T es^elB i andgLloydsohatl. 92 e 
per.rcehtyifptajcticaltyg/dlthOngh!thebe/Shayf)hard,/beeni soipe*)in ; the/ 
Baireati yd^Lta^omAt theitendl df /@1, 'to hndn^ petri 

ceptidnoteadoof B^)pencentv' ^ooWJ were, igiroW i ngo 1 yWel hayej^ 
vervomuch (large i/, pei*canta(gel,»dup^ to) the)fact lhatliberftlnitediiStatesj 
GhVeamment/(hito Jbhat ,exjtent(supported. thej/AmerjquanBuinaip ofi ^ 
Sfhipplngoaaydi byithat.I ddi (not Sadan. thfttdheyohflryei contributed!-any. 
fundsHofdtfdbut ohrvtotalf incOrhe ig(derived .from! )fee&v>ffdm)ldid snry 
yeytsdandigivingnldssfio.the. vessels. ]..;■)) ii; Jon blnov/ I ii 
n Mfi CkiiK tWhatefs! the jpercentagq iiiew'l ( approxililately8m A 

IdLoininander i /T AynoutC) Si^ty#mgte pedtcdnf .audi ^I-petdCeint. • n 1 >. { j; 

J MiijjEb^onM. Biistyweight.iper cent.«*bnelricanf bud •• b ornb 
: {;Goi.omdnden fTAWTtoic/An(l\Ifdjoyds) 02/ipebcet)t, Xhe ( Burehu Meorirl 
tus.vhas^ffdw.lbBut that',it fJteoperceofitege of theiV^seis budtsunder : 
United-) ^tateni Government rioWnerffiip^'bWd/hdrb'/Wief: ibutsfde - oft 
thht yfhe Meritais) haschome ohtsMe (bf tthftt^iatDd Utl/inkl LIoyds laavet 
^Qmqhhips!nnMdA(tf)thatIcJasfi./; cTihejAmdri^an ButieftUiof Shipping. 

tofiduy -isigrowing;,nndoMruiMcGoe.ihasi jnst/ltoldf yon r lypryi*kindly,) 

fQOeihat.iiti in>grpWing .better all)the i iLhe brigihal i oWnershipi,! 

ifiyou might/cilMfso* is.• entirety)chahgerll -inhereis( ho money,infcerH 
cstficontrotling ft.// .If, is. chair,teredo/tmder ,gie/M.W)S)>lof the. Sfcafenoh 
KcW oXoirkfiandi me /are still ousing/ithe origitial/ clwfeiv becausel two; 
could, not changd ,it, itordd.y/'no mutter.!what iwe fried! to^QodSEh^yo 
is no stock and there is no dividend paid. There is nothing paid but 



ATAlUisE 'ilSljiSiftfl!. 4 


iW 


ffiese pxpefises of a C.oveniment institution. When (lie time cOiYies 
that we can -have an established surplus it has been my dream to 1 
establish a compensation fund, or retirement fund for t he old suB - 1 
yevors, but' We haVAnot ‘ibuijBtio flitit pbint Y^et. 1 ' Nobody’AeBieiyes 
anything dii't of the institution. ‘ So that whafeVer we havbfib Used 1 
for the ! clevelo jinibut* 'of Aiiietica’n ; ffiip f pmg ] I h4^b 

the interest o'f' my'kM’arv,'And 1 ‘as'T took' that without te^Abd tci my 
Own' financial 1 affair^,’ th& sootier tliejv get rid 1 ofTb'e 11 thk bett^f I fivilT 
he pleased, but in decency' I can hot do that for- 'hiiotneh 1 twB ( or‘ tKr|d > 
months yet. ,, ' 

BeUentjy, with the approval of Secreihi/y I)ahiels’ and Secretary 
Glass; aha'also WithAhe apprhVal of Sbdret'ai^ dlbcffieldy Tjshecebped* 
in plUaininff lntirehieht from the TJhifed Sta^bs Cha^t Guard 1 'SeWlch 
for Commodore Gheflialb 'a'iid ! Ehgin'eer-ih-Chief MbAlhStUr,, and'they 
have been selected vice presidents. That was on July 1, two weeks 
ago. They are men who are well known throughout the community, 
and particularly well known hebe ’in WUshihgton, and their work for’ 
the Ghhbrhhibht has beep' ek!ceediugij r pr^isetVbijliv. f khbw fhAC 
are a 1 gboct't'eahi And I ImbW hbw uiat lib ihatfeh What 1 habphris' to 
ComuiancteV Taylor, the ihtehbith of Ame'jfibah shihpihg’Wi^lDe cdiS 1 
fied bil jhstjd^ ^eTl as ifCbmiWafi&AB Thyloy wkb the^eV It will ohl^S 
by ai short tilth Jbpfore they will; all febl r that' they Ban cji'siibhsb ^witlh 
my services. I undertook the work as much from a desire to build 1 
up an American merchant marine as anything else. That has been' 

• v T A'h 1 » r t A If- i-v < ^ a /-v * 4- A . -v ^ -m * /s' /■ 1 ^V-\ A -»t tt a <■, a 1'4-t % 1 ' -4 / «1 ^ 1' ' Va a ttA A ^ a’Ltt a a1 1 ^ 


shtpiVtopely, 

\VAhld tdke a lime inibrest 
forming, but I haye mot 
the 1 time cbmes. J ' ^ 


1 haveust repent(y told a gentleman that J 
Pest in a ship cortrbahy of tils that fie proposed 1 
ot done H yetX fit? f lit he ( ‘^'d ^o'^om^'^^Jcn 

Mr. Edmonds. Can you render the ;sanie^sei;yice, pommander^To 
the present merchant marine that Lloyds rendered?, 

Commander Taylor. We can, at the proper .time! Xow, there is aj 


\Miiy.iS cuniioi JLiipyrio.ivegpwi : , out -a uu nuu ivny wA •• 1 *Pj pV/ 
and T do not care whether it is so. This I am sure of. that they work 
together for tlie advantage of British commerce. so T believeAlih 
\mderwrheysm The 'American Btireau pf .Shipping, or if they fai}^ 
some other American fclassihcayibh society,' must work : together fpr 
the benefit of the American merchant marine. 

' My interest now is to put the American Bureau of Shipping fim 
such* shape that it can do for the American merchant marine what 
Lloyds has done for British shipping. But we have been, handi¬ 
capped, as Lloyd- have been, by the extraordinary kind of business' 
for the last two or three years’, the extraordinary demands for the 
verv kind of men that we'heed Tor instructors, and when I tell you 
that we have increased our force up to ISO’ or 100 men you can see 
that We have bad to cult this tjnitod .States for those men. How-’ 
ever, it is not perfect yet; in fact, while the American Bureau ofj 
Shipping to-day is not perfect, it is a little more perfect than we ex¬ 
pected it to be in view of the conditions. 





128 


MARINE INSURANCE. 


Mr. Lehlbach. Commander, have you any suggestion at all with 
regard to any legislation which you think would be helpful towards 
the development and growth and expansion of the bureau? 

Commander Taylor. I am not sure, Mr. Chairman, that I can 
make any suggestion along that line. There is only one thing that I 
think must be done, and that is the establishment in this country of 
the legal load line. Now, we are placing the load line on all of these 
vessels that are being built under the class of the American Bureau 
of Shipping and also in the dual class, where both Lloyds and our¬ 
selves are classing the vesels, giving each vessel a class by ourselves. 
That system of dual classing is in accordance with the British Board 
of Trade Regulations, in addition to the establishment of a load line,, 
so that it has got to be an international arrangement. 

Now, we must have a law passed which will compel every seagoing- 
vessel to have a load line. It seems to me that for all transoceanic 
service there must be one system established for a load line, and for 
our coast service, our gulf service, our lake service and Pacific coast 
service, because each of those services are entirely different from the 
others. There must be a different load line fixed for them, and there 
must be a load line established for the international transatlantic 
service. For that purpose I think there should be a load line for the 
present interoceanic trade and also for that trade which is coming 
to take the place of what it was during the war. There were many 
thousands of pounds spent upon a trade by English shipbuilders and 
underwriters that was passed over during the w r ar, and now there 
must be a new load line for the trade that is coming back, and that 
load line must be more stringent than the old line. The time is com¬ 
ing when we must have a load line which must be established by the 
American Bureau of Shipping. 

Mr. Edmonds. We would have to have some legislation to enforce 
it? 

Commander Taylor. Yes, sir. 

Mr. Edmonds. What has been the objection in the past to the estab¬ 
lishment of load lines? 

Commander Taylor. I will tell you, Mr. Edmonds. The objection 
arises mostly from the coastwise steamer, both here and on the Pa¬ 
cific coast, because they are short runs and they are loaded in certain 
ways; they are loaded sideways, in such a way that it is not allowable 
in trans-Atlantic service. They have been accustomed to a certain way 
of loading their ships and it would be difficult to make the change, 
and for that reason they do not want the change. For instance, they 
can carry a big load in some cases more easily near the top than 
down below. The objection comes mainly from the coastwise trade. 
That trade must be controlled by itself. All these trades must be 
considered by themselves because they all differ. The lake trade, 
for instance, has vessels that carry enormous loads with compara¬ 
tively small power. They only run in the summer time and they 
only get into trouble when they attempt to run two or three days too 
late in the season, as in the one case in November, 1913. That can 
all be obviated, and I am quite sure that the lake people will recog¬ 
nize any reasonable load line regulation. As a matter of fact, there 
is a certain kind of load line regulation up there now, and that is the 
water line in the Livingston Channel. 


MARINE INSURANCE. 


129 


Mr. Edmonds. If we have nothing on the load line now except the 
English laws, perhaps it would be well to postpone any load line leg¬ 
islation until the English law gets under wa}\ 

Commander Taylor. No; I do not think so. I think that any 
vessel that goes down to South America should go under a load line. 
Now, there is a bill in the Senate, Senate bill 575, on the same subject, 
and also a House bill, practically the same, H. R. 3621. 

Mr. Lehlbach. Whose bills are those? 

Commander Taylor. Mr. Alexander’s bill in the House, and I 
think it has the same wording exactly as the Senate bill introduced 
by Senator Fletcher, from Florida. Those bills both provide that 
the load line shall be so marked on the vessel in such manner as the 
Secretary of Commerce shall direct. It puts it under the control of 
the Secretary of Commerce. 

Mr. Edmonds. Would this bill meet your bureau’s approval? 

Commander Taylor. Well, of course, I would like to cut out some 
lines in it, but I do not know but what it is alright. 

Mr. Edmonds. The English Government does not place the estab¬ 
lishment of the load line in Lloyds Register ? 

Commander Taylor. It is in the hands of the Board of Trade, 
and the Bureau Veritas and the British Lloyds Register are named 
as competent authorities to approve the load line. 

Mr. Edmonds. Have they put you in there yet ? 

Commander Taylor. No, sir; they have not yet. 

Mr. Edmonds. Why not put it in the Shipping Board ? 

Commander Taylor. How long is the Shipping Board going to 
last? 

Mr. Edmonds. That is under permanent legislation. It is a per¬ 
manent affair. It may be changed in the matter of the title, but it 
will be the same establishment. All the emergency legislation will 
come and go as the war has come and gone. 

Mr. Chindblom. There are no reciprocal relations now between 
you and Lloyds Register ? 

Commander Taylor. No, sir; except to this extent: When we made 
the contract, when we were invited down to Washington by Admiral 
Bowles when he was manager of construction of steel vessels, he 
sent for Mr. French and myself and told us that it had been deter¬ 
mined that the fabricated ships in the yards at Hog Island and at 
Bristol and elsewhere were all to be built as a class, and we were to 
arrange the terms on which we would do that work, and he felt that 
there should be only one series of fees charged for testing materials. 

Mr. Chindblom. But they had representatives present when the 
classification was made ? 

Commander Taylor. Oh, yes; they had their surveyors in the 
yards all the time just as we did. 

Mr. Chindblom. Was it together or separately? 

Commander Taylor. I would not say working together. I think 
in some instances we have had the testing of tanks done by a Lloyds 
man on one side while we were on the other side. 

Mr. Chindblom. What is the particular advantage of establishing 
a load line? 

Commander Taylor. To prevent unscrupulous owners from over¬ 
loading a ship and endangering the ship and the cargo. 

160770—20-9 


130 


MARINE INSURANCE. 


Mr. Chindblom. The only advantage of that would be to the insur¬ 
ance underwriters and to the crew ? 

Commander Taylor. I think that idea originally came from a 
member of Parliament named Plimsoll, who looked up the records 
and found that there were so many crews lost on account of over¬ 
loading ships, and I think it all grew out of the question of the 
safety of the crew, and finally what they called the Plimsoll mark was 
adopted, but now the name Plimsoll has been dropped and it is 
called the load mark. After that law was passed there was a de¬ 
crease in the number of vessels lost on account of overloading. 

Mr. Chindblom. Would it be better for us to pass legislation of 
this kind and leave it to some department of the Government to 
establish a load line, or could we not get up a bill saying just what 
the load line should be ? 

Commander Taylor. I think it would be impossible, because that 
is a variable question. 

Mr. Chindblom. It would be changed for every ship that came 
along ? 

Commander Taylor. Yes, sir: every ship would be different from 
the other, except in the case of all these fabricated ships under the 
Shipping Board, and even those ships may be changed from time to 
time. You would be surprised to see how many changes there have 
been in the size of ships, the construction of ships, by the United 
States Shipping Board since they started building ships. They are 
building from 10,000 tons to 30,000 tons. A question of that kind has 
got to be left to the department. 

Mr. Edmonds. Of course, we could not leave it to any semipublic 
concern like yourself? 

Commander Taylor. Oh, no. 

Mr. Edmonds. We would have to leave it to the Secretary of Com¬ 
merce ? 

Commander Taylor. You could determine the rules upon which 
the load line was to be made and then you could assign the Ameri¬ 
can Bureau of Shipping as the legal authority to mark the ships. 
You could do that. 

Mr. Edmonds. That is legislation that we could pass now ? 

Commander Taylor. Yes, sir. 

Mr. Edmonds. It would not be affected by future developments? 

Commander Taylor. No, sir. It could be changed by the Depart¬ 
ment of Commerce; in fact, Mr. Redfield commenced in 1915 to agi¬ 
tate this question of the load line, and he invited a number of ship¬ 
owners and underwriters, and among others myself, and he made me 
chairman of a committee to determine this load-line proposition, but 
the war came on and everybody was too busy to take it up. 

Mr. Edmonds. The shipbuilders would not be interested in that 
at all? 

Commander Taylor. No. 

Mr. Edmonds. The only people who would be interested are the 
people who are at present getting advantage of the overloading of 
ships ? 

Commander Taylor. Yes: and the general public. 

Mr. Edmonds. Oh, the general public, of course; but I meant that 
in taking a bill of this character the only people we would have 


MARINE INSURANCE. 131 

to ask before the committee would be the shipowners, the insurance 
men, and the American Bureau of Shipping? 

Commander Taylor. Oh, yes; and some of the builders would 
have some ideas on the subject. 

Mr. Edmonds. They would have ideas, but they would not have 
any objections? 

Commander Taylor. No; they have raised no objection in any of 
those ships that we have put the load line on. 

Mr. Edmonds. Now, Commander, tell me something. You say you 
are rapidly building up to the point of efficiency to the same degree 
as Lloyds. Is there anything that you do not do at the present time 
that is very vital to the merchant marine of the country and that 
ought to be done ? 

Commander Taylor. No, sir; nothing that I know of. Lloyds 
have had the same disabilities that we have had in the last two or 
three years; that is to say, a year and a half ago, I think they had less 
than 40 surveyors, and we had as many as they had then in this 
country. Now they have increased it to 110. I understand that re¬ 
cently, due to cancellations, they have reduced their force somewhat. 

Mr. Edmonds. Now, they have the opportunity, through various 
agencies, to be of assistance to a ship when it gets into trouble? 

Commander Taylor. In England the shipyards were more busy on 
war vessels than they were on merchant vessels. 

Mr. Edmonds. I mean supposing a ship was classed in your bureau 
and got into some trouble on some point, it could be taken care of? 

Commander Taylor. Oh, yes; Lloyds can take care of them in 
England; Lloyds can take care of all their ships. They have exclu¬ 
sive surveyors in large ports of Europe. We have nonexclusive sur¬ 
veyors. We have surveyors in Shanghai and we have recently sur¬ 
veyed boats in Peru for the Shipping Board. 

Mr. Edmonds. But you can do that anywhere? 

Commander Taylor. You can do it some times, but it goes too 
rapidly. 

The Chairman. What do you mean by nonexclusive surveyors? 

Commander Taylor. Men who are not on the pay roll receiving 
regular salaries. A nonexclusive surveyor does certain work of which 
the fee is a certain amount, 50 per cent or something of that kind. 

Mr. Lehlbach. So far as the work that they perform, their serv¬ 
ices are just as satisfactory? 

Commander Taylor. Oh, yes; the nonexclusive surveyors in the 
foreign ports are very satisfactory. Some of them have been non¬ 
exclusive surveyors for years. I have in mind one at a certain port, 
and a friend of mine told me about his inefficiency and his habits, 
and he had to be dropped. 

Mr. Chindblom. Nonexclusive surveyors are doing work for 
others ? 

Commander Taylor. Oh, yes. 

Mr. Chindblom. You would not permit an exclusive surveyor to 
do work for anybody else? 

Commander Taylor. Oh, no. The exclusive surveyor must work 
for us alone. 

Mr. Chindblom. Would the establishment of a load line affect the 
market value of a vessel? . 

Commander Taylor. No, sir; I think not. The load line at the 
present time has given the ships a larger dead-weight capacity than. 


132 


MARINE INSURANCE. 


their estimated weight. In other words, you can load them greater 
than the draft to which they were designed. I think that is so in 
many cases. It is not so in all cases. In the wooden ships it is a 
little different. I think they are a little bit less. 

Mr. Chindblom. I was wondering whether the fact that they could 
overload a vessel gave the vessel a larger commercial value because 
of the increased amount of cargo they could carry ? 

Commander Taylor. That is true if they do it, but the load line 
does not permit them to do it. We will put it this way: If there 
was a vessel constructed now in the United States without a load 
line and the load line reduced her draft of water, that would reduce 
her dead-weight cargo, and then the man who wanted to buy that 
ship would say: “ I will only pay you on the basis of the dead¬ 
weight cargo that she can carry.” 

Mr. Chindblom. I did not mean that we should take that into 
consideration, but it might be one of the arguments. 

Commander Taylor. Oh, yes; of course. I think that every ship 
should be made safe, so far as humanly possible. 

Mr. Chindblom. What I was getting at was whether or not some 
of the opposition to the load line came from that source. 

Commander Taylor. Well, I do not know. 

Mr. Edmonds. Have you any ideas or suggestions to make in re¬ 
gard to this bill? 

Commander Taylor. Well, I may have. 

Mr. Edmonds. Just take it home with you and study it over and 
see what you think of it. You are a kind of semibeneficial organiza¬ 
tion, and not an organization for profit. 

Commander Taylor. Yes; and I want to emphasize that. 

Mr. Edmonds. And we want to work along with you and help 
you build up your bureau. 

Commander Taylor. I would be glad if you would do so. 

Mr. Edmonds. We would be very glad to see a bureau established 
over here like Lloyds. 

Commander Tavlor. I think it is bound to come. ' 

Mr. Edmonds. If we are going to have any merchant marine in 
this country it has to come. 

Commander Taylor. In 1916 when I took hold of this bureau I 
made a prediction of that kind when there was a very limited amount 
of insurance placed in this country. I made the assertion before 
some of our people that the time was coming when the insurance 
would be placed in this country in our people, because in 1915 it 
was beginning to come our way, and the time is now coming when 
it will be so. The bankers will also go into the construction of ships. 
This company that I spoke of some time ago, that a friend asked me 
to come into, was really backed by a banker. 

Mr. Edmonds. American shipowners have the option to go into 
either your register or Lloyds? 

Commander Taylor. Oh, we could not stop them very well. I 
wish we could. 

Mr. Chindblom. Do they go into both of them? 

Commander Taylor. Yes; we have two cases like that now, for 
this reason. There is a firm on the Pacific coast building four ves¬ 
sels for themselves on their own speculation, and the first vessel— 
they do not say what they are going to do with the other three ves- 


MARINE INSURANCE. 


133 


sels, but the first vessel they propose to put under the American 
Bureau of Shipping. They sent their plans to Lloyds, and Lloyds 
turned them over to us. - I wired them to know why we had to play 
second fiddle to Lloyds, and they said that they were putting in such 
a large amount of money by having them registered in that way 
they could sell the ships to better advantage. But the time for that 
has gone by, and the sooner that kind of speculation goes by, the 
better. 

Mr. Chindblom. If you have in mind anything that we can do to 
assist in straightening out matters of that kind, we would like to 
have you give it to us. 

Commander Taylor. I will be glad to assist you in any way 
possible. 

Mr. Chindblom. We will run several weeks on these hearings. 

Commander Taylor. Yes; and about two weeks from to-day you 
will see me again. I am much obliged to you, gentlemen. I am also 
obliged to Mr. McGee for allowing me to speak at this time. 

STATEMENT OF MR. W. H. McGEE—Continued. 

Mr. Chindblom. Mr. McGee, with reference to the matter of 
building ships, how is the builder’s risk insurance usually carried? 
Where is it placed? Do you carry it? Do American companies 
carry it? 

Mr. McGee. Yes; when they get the chance to. 

Mr. Chindblom. Are you carrying much of it now ? 

Mr. McGee. Not as much as we should. 

Mr. Chindblom. What has been your history in regard to that? 

Mr. McGee. Builders’ risk? I take it that you mean commercial 
vessels ? 

Mr. Chindblom. Yes. 

Mr. McGee. Brokers who handle that business will be very apt 
to send it to foreign markets. There has been comparatively little 
of it done in the American market. In fact, there has been so little 
of it done in the American market that the American companies 
have lost interest in it. 

Mr. Chindblom. Is there any particular reason for that? 

Mr. McGee. None that I know of, except that that class of busi¬ 
ness has been in the hands of a limited number of brokers who have 
apparently had British affiliations rather than American. 

Mr. Edmonds. Have not some of our companies refused to take 
that business? 

Mr. McGee. Yes; because they did not want to take it for the 
rates they were offered for it. 

Mr. Chindblom. Is there any prospect of improvement along that 
line ? 

Mr. McGee. During the past few years everything has been built 
for the Emergency Fleet Corporation, and the Emergency Fleet 
Corporation has carried its own risk, and the market has not been 
tried out. I do not know to-day what the market would do. 

Mr. Chindblom. Is the workmen’s liability insurance carried on 
those ships? 

Mr. McGee. That is something I do not know anything about. 
That is a different line of business. 

Mr. Edmonds. It is carried mostly under the State laws. 


134 


MARINE INSURANCE. 


Mr. McGee. That is carried by liability insurance companies or 
casualty insurance companies or by some of the States who main¬ 
tain their insurance fund. 

Mr. Chindblom. I think you said something this morning about 
brokers making a profit aside from a commission which would be 
properly or legally due to them. Has there been much of that, say, 
in the city of New York? 

Mr. McGee. There was quite a batch of cases of that kind in the 
city of New York, and it was entirely amongst those who were 
unfamiliar with the insurance business. They bought and sold some¬ 
thing that was nonexistant. In order to effect marine insurance 
legally, there must be an insurable interest. That is to say, that the 
person whose name appears as the insured must have an interest in 
that venture. If he has no interest the insurance is useless. 

Mr. Chindblom. But some brokers did seek to buy up the insur¬ 
ance, did they not, to corner it ? 

Mr. McGee. There were a group of brokers who went out without 
any order from anybody, without any authority from anybody, to 
place insurance. They placed insurance in their own name, or to 
whom it may concern, or in some fictitious name, and then after they 
had cornered the market they proceeded to watch and see who 
shipped cargoes on a particular vessel. They would then go to the 
shipper of merchandise who had endeavored to insure it and found 
he could not do it, and the broker would say, “ I can sell you some 
insurance.” 

Mr. Chindblom. When was that? 

Mr. McGee. Late in 1917 and early in 1918. 

Mr. Chindblom. Did the insurance companies know that this was 
going on? 

Mr. McGee. No; it was an accidental circumstance that led to dis¬ 
closure of the facts. Then the insurance company would simply 
say, “ Why, if you are not the one who owns the ship or an interest 
in it, the insurance is of no value, and if you sold it it had no value 
if it was sold.” 

Mr. Chindblom. Is it a common preformance to buy and sell in¬ 
surance in that manner? 

Mr. McGee. No, sir; it is not. It is only done by people who are 
ignorant of the fundamental principles of marine insurance. 

Mr. Chindblom. What stopped it? 

Mr. McGee. I believe some gentlemen got quarreling among them¬ 
selves and somebody invited the insurance department of the State 
of New York to look into the matter, and the insurance department 
of the State of New York held an investigation and brought out the 
facts which a great many of us never heard of before. It appears to 
have been caught very early in its development. 

Mr. Chindblom. Was not there some legislation passed? 

Mr. McGee. There was, but the legislation which was passed did 
not do any more than the law which stood before it did. 

^ Mr. Chindblom. Is there anything of that kind going on now in 
New York? 

Mr. McGee. No, sir; there is not. 

Mr. Chindblom. Is there anything else? 

Mr. McGee. No, sir. There were a number of brokers attracted to 
the business by the large amount of money that was being handled. 
They knew nothing whatever about fundamental principles. They 


MARINE INSURANCE. 


135 


knew nothing whatever about the practice in marine insurance. They 
know nothing about insurable interest, and therefore they had a 
great many things in mind and did a great many things that an ordi¬ 
nary intelligent broker would not have done. 

Mr. Chindblom. It was not all due to lack of intelligence; it was 
due to stupidity. 

Mr. McGee. Yes; but stupidity, I doubt, would not have gone as 
far as they did unless they were ignorant of the principles of busi¬ 
ness. 

Mr. Chindblom. Is there anything within your knowledge now 
which would keep you from believing that this thing is going on 
now anywhere else at the present time? 

Mr. McGee. No, sir; there is not. 

^ Mr. Edmonds. Some of these brokers did not confine themselves to 
New York insurance. 

Mr. McGee. Oh, no; they established offices in Genoa, in Milan, 
and in Barcelona. They did the same thing in the English market 
and the London underwriters are up in arms over improperly placed 
insurance which shut the legitimate type out of the open market. 

Mr. Edmonds. Has that been pretty well stopped now, every¬ 
where ? 

Mr. McGee. It has, because exposure to the air settled the ques¬ 
tion. Everyone is familiar with the facts now and would not fall 
for it. 

Mr. Edmonds. In other words, it was an illegal policy; they did 
not want an illegal policy and went to the regular companies to get 
a policy ? 

Mr. McGee. Yes; in a great many cases. I get inquiries even 
now, at intervals, from bankers or consignees in foreign countries, 
wanting to know the facts, wanting to know if such and such a rate 
was paid. A great many cases have come to our attention where 
brokers have placed such insurances, and the merchants were scour¬ 
ing the market to place the insurances when they found that shippers 
were inquiring for insurance. I would want to know from a broker 
what authority he had to place that assurance, and he would say 
none; that he placed it on speculation. I would tell him that they 
had no existing insurance; that the insurance was invalid and had 
no value of any kind. 

Mr. Edmonds. Did the companies take that stand and just simply 
wipe them out, then ? 

Mr. McGee. Surely. 

Mr. Edmonds. And did they 'make losses on it, or were they reim¬ 
bursed their money ? 

Mr. McGee. Barely was any money paid. 

Mr. Chindblom. It was practically an option ? 

Mr. McGee. Practically taking an option; yes. You do not catch 
a broker playing that game and putting up money, too. 

Mr. Edmonds. There is no practice of that kind that you know 
of now ? 

Mr. McGee. I know of none. It is absolutely illegal. When the 
facts are brought out it settles itself. 

Mr. Chindblom. Do you know of any combinations in foreign 
countries now along this same line? 

Mr. McGee. Just what do you mean by “ combinations ” ? 


136 


MARINE INSURANCE. 


Mr. Edmonds. In connections with this speculative purchase of 
insurance ? 

Mr. Chindblom. Brokers’ combinations. 

Mr. McGeEj. No; I do not. 

Mr. Chindblom. What we are trying to get at is whether that con¬ 
ditions has been wiped out effectively everywhere, so that it does not 
exist now, either in this country or anywhere else. 

Mr. McGee. So far as I know, it has been wiped out. 

Mr. Chindblom. In London, for instance, and elsewhere? 

Mr. McGee. Yes. 

Mr. Chindblom. Are there any operators in Barcelona or Madrid ? 

Mr. McGee. None that we know of. I think the companies who 
operated in Barcelona, Madrid, and Genoa, and so forth, burned 
their fingers so thoroughly and involved the merchants that trusted 
them so thoroughly that I do not believe you can talk foreign insur¬ 
ance of that kind to any intelligent merchant in New York City. 

Mr. Chindblom. With reference to the number of American com¬ 
panies now engaged in the business, as compared with a few years 
ago, I think you gave us some figures this morning, which I do not 
recall just now, but I understood you to say that at the present time 
there were probably 150 to 175 companies. I presume naturally 
some of them are of soap-bubble character, are they not? 

Mr. McGee. I should not be at all surprised to find that there 
are quite a great many bubbles. I believe there are quite a good 
many companies that have real money behind them, which ought 
not to be classed as bubbles, but the underwriting management of 
those companies is such that they can not survive, because they are 
selling their insurance at less than it costs them. 

Mr. Chindblom. Have you yourself any notion or opinion as to 
how many good American companies there are now—I do not ask 
you to name them, of course—but of the 175, how many, given in 
percentage approximation or in any other way, are good companies? 

Mr. McGee. Any American company that is formed under the 
laws of the State of New York, the State of Massachusetts, the State 
of Pennsylvania, the State of California, and a number of other 
States must be sound. When they are formed, if they meet the 
measure which the government of those States, the insurance de¬ 
partments of those States, lay down, you have a perfectly good, 
sound company, one that can not be questioned from any financial 
point of view. The difficulty arises in the management being in¬ 
efficient and inexperienced, and it so becomes afterwards that the 
company becomes involved. 

Mr. Chindblom. Do you know approximately how many com¬ 
panies there may be or what percentage there may be which have 
become thus involved since their organization? 

Mr. McGee. No; I have not formed any conclusion on that. 

Mr. Chindblom. Have you any opinion on it? 

Mr. McGee. No; I have not. 

Mr. Edmonds. Presumably a good many companies would with¬ 
draw from the marine insurance business, if they were not successful, 
and go over to other business. 

Mr. McGee. Well, quite a few have lost a good deal of money. 
There is one feature that some of us have given some thought to, 
which really goes along another line of thought, and that is that 
some of these American companies may have their ownership in 


MARINE INSURANCE. 


137 


some foreign nation, and that the underwriters of some foreign 
country will be operating American insurance companies, and there 
will not any of us know much about it until the odium has passed over. 

Mr. Chindblom. Do you think that capital existing in the United 
States may thus have been transferred into apparently American 
organizations ? 

Mr. McGee. I doubt that, but I should not be surprised if gen¬ 
tlemen of a speculative turn of mind, with an eye to the future, 
would say, “ Well, you can build an insurance company on specu¬ 
lation just as you build ships on speculation,” with the idea of selling 
it in the future. 

Mr. Chindblom. Selling it to foreign capital? 

Mr. McGee. Yes. 

Mr. Edmonds. Were the rates on this hull business cut to such a 
point by foreign countries as to make them unprofitable ? 

Mr. McGee. Yes; there is no auestion about that. The American 
marine insurance companies are badly handicapped by the very 
low rates at which the English market is writing business; and the 
English market is doing it deliberately for the purpose of driving 
the American companies out and with the idea of controlling the 
business again, as they once did, after the American companies are 
driven out. 

Mr. Edmonds. In other words, they are writing our ships at a 
lower rate than they do their own ? 

Mr. McGee. Yes; in the London offices. The London offices of a 
great many companies which are admitted to do business in the 
United States are writing American business at lower rates than 
that company’s own branch office in New York will write them. 
There are some British companies admitted to do business in the 
United States, who do not write their hull business here at all, but 
write it entirely in London. 

Mr. Edmonds. And their New York office will not have the rate 
that they make ? 

Mr. McGee. The New York office has not the authority to bind 
them; they do not write that class of business. It is all written in 
London. 

Mr. Edmonds. What can we do to stop that ? 

Mr. McGee. I do not know. 

Mr. Chindblom. That is an old habit which they acquired soon 
after the Civil War, is it not? 

Mr. McGee. Yes. The American companies were driven out of 
business. One of the reasons for present-day conditions in the marine 
insurance business in this country is the fact that the American 
marine insurance companies were one by one driven out. In many 
cases it was due to dry rot, and in many cases it was due to absolute 
competition right in this market by foreign companies, not only 
British companies- but companies from other countries. 

When I first came into the marine insurance business in New York, 
as a small boy- 

Mr. Chindblom. How long ago was that, Mr. McGee? 

Mr. McGee. You press me hard. However, it was 35 years ago. 

When I first came into the marine insurance business with the 
brokerage firm of Wreak & Chubb, in 1881, there were 12 or 13 New 
York State companies transacting marine insurance business; there 
were 15 or 20 in Boston; there were 3 in Providence; all of which I 



138 


MARINE INSURANCE. 


knew, as office boy, of course, because our brokerage firm was doing 
business with all of them. Of those New York companies, but one is 
left, the Atlantic Mutual. Of the large number of Boston companies 
but one is left, the Boston Insurance Co. Of the three in Providence 
the only one left is the Providence-Washington Insurance Co. On 
the Pacific coast there were 8 or 10, and they have all been driven 
out of business by these measures. 

Mr. Chindblom. While I am sorry to have pressed the gentle¬ 
man, I think that this is very illuminating. 

Mr. Edmonds. Has there ever been a time when the Lloyd people 
charged a higher rate for insurance on American hulls than they 
did on English hulls? 

Mr. McGee. Yes: when there was no market in America. Prior 
to 1010 it would be a difficult thing to place more than 10 or 15 per 
cent of the valuation of an American-owned hull. Of course, they 
were not large vessels in those days, and there were not many of 
them. I remember the Ward Line, and I think the top valuation 
there was something like six or seven hundred thousand dollars, and 
when I say the “ top valuation ” I mean the vessel with the highest 
valuation in that ownership. 

Mr. Lehlback. I have before me a list of insurance companies 
which are members of the Association of Marine Underwriters of 
the United States. A large number of them, by title, show that they 
are fire insurance companies. Are all of these companies at the 
present time on the market and in the business of writing marine 
insurance ? 

Mr. McGee. That association is composed of Americans to the 
core. In other words, it was formed with a view of bringing to¬ 
gether—with no particular purpose at that particular time, but 
looking more to the future, I think—the companies which are owned 
by American capital and managed by Americans. There are quite 
a good many American insurance companies which are owned by 
foreign companies. There is hardly a British company but what 
owns three or four American annexes or feeders. 

Mr. Lehlback. What I want to know is, would all those com¬ 
panies consider and accept marine insurance risks if presented to 
them ? 

Mr. McGee. Yes. 

Mr. Lehlback. I happened to notice this list. The American In¬ 
surance Co. and the Firemen’s Insurance Co. are both concerns in 
the city in which I live, the city of Newark, N. J. 

Mr. McGee. Yes. 

Mr. Lehlback. This is the first information I have had that they 
were marine companies. I know the people comprising those com¬ 
panies. I know the general officers of the Fireman’s Co. very well, 
every one of them, personally, and I never knew them to write 
marine insurance. 

Mr. McGee. They have only taken it up within the past two or 
three years. I will venture to say that 90 per cent of the member¬ 
ship of that association is made up of companies which have come 
into the marine insurance game within three years. 

Mr. Lehlback. Do they restrict their marine risks to cargo, or 
will they write hulls ? 

Mr. McGee. They write hulls and cargo. 

Mr. Lehlback. That is good news. 


MARINE INSURANCE. 


139 


Mr. McGee,. All they want is encouragement. 

Kd , monds ' During your long connection with the insurance 

Ss\iScir,hS t i known ,he Llo) " i ,o 

M . c GrEE. No; I do not think they do in such a way that we 
could point to it. I have no suspicions, even, of a case of that kind. 
I should say that Lloyd s Registry partakes of an international char- 
acter, and is apt to be pretty fair in its ratings. I am inclined to 
think it is, and would class it as eminently fair. There is nothing to 
be gained bv it. Notwithstanding that, I think perhaps there may 
be ways m which they can divert construction to British yards, and 
ney might do that; but when it comes to the classification of the 
American-built vessels, I should be inclined to think that they are 
perfectly fair. 

Mr. Edmonds. T\ hat sort of protection do you get out of this sec¬ 
tion of the Shipping Board act, this permanent legislation by which 
ve try to prevent discriminating insurance? Can not American com¬ 
panies get any protection out of that? 

Mr. McGee. I am not clear as to how they could. 

Mr. Edmonds. It refers to common carrier by water or persons 
subject to this act, which are subject to the penalty also. It says 
there: 


To induce, persuade, or otherwise influence any marine insurance company 
°r underwriter, or agent thereof, not to give a competing carrier by water as 
favorable a rate of insurance oh vessel or cargo, having due regard to the class 
of vessel or cargo, as is granted to such carriers or other persons subject to 
this act. 

Mr. McGee. I do not see how we get any protection. 

Mr. Edmonds. Ought we not to arrest some of the shipping men 
that take this cheap English insurance, which is discriminating? 

Mr. McGee. It is discriminating. So far as it is done, so far as an 
American owner does it, he is depriving the United States Gov¬ 
ernment of the tax, the Government gets no premium tax, no income 
tax, no excess-profits tax. That is one reason why they get a lower 
rate in Europe. I do not know how you can reach a condition of 
that kind except through the question of taxation. There is one 
way in which a great deal of that can be cured, and yet it would not 
go very far, because the burden can be taken off one set of shoulders 
and put upon another set of shoulders which are not within the 
reach of our courts. 

One of the provoking eA 7 ils of the hull business that New York 
underwriters, whether they be Americans or British, have suffered 
from, is the writing of American hulls by foreign officers of com¬ 
panies that are admitted to do business in this country. The State 
of New York accords to certain foreign countries the privilege of 
doing business, of transacting marine insurance business in the State 
of New York. Of course that is as far as the State of New York 
can go. Now, these companies, by reason of that admission, claim 
certain rights, and I think, in common equity, that they are entitled 
to those rights. They have been given certain privileges, and now 
they are entitled to claim them. But that self-same company, 
through another set of officials, will take that business out of this 
market and place it over somewhere else where they escape the obli¬ 
gations which should follow the company which has been admitted 
to do business in this country. 


140 


MARINE INSURANCE. 


Mr. Lehlbach. Could you not compel a company admitted to do 
business in the United States, when it accepts business tendered in 
this country or originating there, to write it through their local 
offices ? 

Mr. McGee. That is supposed to be the effect of the New York 
State laws, but we all of us know that that is not being complied with. 
We all of us know that the British insurance companies which are 
transacting business in New York are writing hull business at delib¬ 
erately cut rates for the purpose of breaking down the market here. 
They are doing that in London, Liverpool, and they may be doing it 
somewhere else; but always outside of the United States. Of course, 
one way in which that can be reached and prevented is to have the 
facts presented and the evidence presented to the insurance commis¬ 
sioner of the State of New York, for instance, who has the power to 
revoke their licenses. But it comes back to a question of practical, 
sound business. How are you going to get the evidence ? Who of us 
are going to peach on the next-door neighbor because his brother in a 
foreign country is doing something we do not like to have done ? And 
so it keeps going on. 

Mr. Lehlbach. Is this feasible, or is the volume of business too 
large to make it feasible—to compel the broker to record somewhere, 
either with the commissioner of insurance or in some recording office 
or bureau, the insurance risks that he places outside of the country? 

Mr. McGee. That is practicable. 

Mr. Lehlbach. Make them make a record of it. 

Mr. McGee. It is practicable to make the broker pay that tax; but, 
Mr. Broker, of course, will fight that; and Mr. Broker is generally 
very powerful, because his ship-owning friends come along and help 
him. 

Now, the insurance broker has what he thinks is a perfectly fair 
answer to that argument or condition which I mentioned, and that is 
this: He will sav that if you do anything of that kind you are prac¬ 
tically giving the American insurance companies or the American 
market a monopoly of the business, and the tendency of a monopoly 
is to raise the rates; and the shipowner is helpless to save himself, 
because he is practically forbidden to seek a cheaper market. That is 
a half truth. 

Mr. Lehlbach. If he simply recorded his transactions for informa¬ 
tion, in order to detect violations of law, it would not give a monopoly 
to the American companies? 

Mr. McGee. No. 

Mr. Lehlbach. I simply say it would compel him to make a record 
of his foreign business. 

Mr. McGee. And to pay the tax. 

Mr. Lehlbach. If the payment of the tax would create a monopoly, 
that might be a different situation. 

Mr. McGee. It puts them on a parity. 

Mr. Lehlbach. If the rates in foreign countries are less, it would 
not establish a monopoly, because it would not be any greater burden 
to the foreign business than there is on the present basis. 

Gentlemen, there is a roll-call order. It is not a roll of the House, 
and therefore there is no opportunity to answer if you are not pres¬ 
ent when your name is called. 

The committee will now adjourn until to-morrow, Thursday, July 
17, 1919, at 11 o’clock a. m. 


MARINE INSURANCE. 


House of Representatives, 

Subcommittee of Committee on the 

Merchant Marine and Fisheries, 

Washing ton, D. G., Thursday, July 17, 1919. 

The subcommittee met at 11 o’clock a. m., Hon. Frederick R. Lehl- 
bach presiding. 

Mr. Lehlbach. I believe that at the conclusion of the hearings 
yesterday we had an arrangement to hear Commodore Bertholf this 
morning. 

STATEMENT OF COMMODORE E. P. BERTHOLF, VICE PRESIDENT 
OF THE AMERICAN BUREAU OF SHIPPING. 

Commodore Bertholf. There is nothing I can say particularly, 
unless some one wants to ask questions; Mr. Taylor covered 
the ground so far as the American Bureau of Shipping is con¬ 
cerned and covered it very thoroughly. There is nothing further 
for me to add to that, except that I would like to urge the matter 
of the load line which he brought up yesterday. A bill was intro¬ 
duced in this session, and at the last session, establishing the load 
line, and it has always seemed to me that is most important. The 
American Bureau of Shipping is now marking the load line for the 
ships built for the emergency fleet, but the load line is not compul¬ 
sory under the law. Other countries have a compulsory load line, but 
this country has not; and it ought to be marked by the American Bu¬ 
reau of Shipping just as it is marked on the other side by the Lloyds 
Registry. 

Mr. Lehlbach. Endeavors to secure load-line legislation in the 
past have been made in this country, have they not? 

Commodore Bertholf. Sort of desultorily, but never whole¬ 
heartedly. 

Mr. Lehlbach. And they have met with more or less determined 
and effective opposition. If you have the knowledge, will you 
kindly tell the committee the motive and source of this opposition 
to this load-line legislation? 

Commodore Bertholf. I can not see that any opposition would 
come from anybody except the operators of a ship. The load line is 
for the purpose of preventing the vessel from proceeding to sea with 
a load that is not too great for it, and of course that means safety of 
cargo and safety of the ship and of the lives of the people on board. 
No one is interested in overloading a ship except those who operate 
the ship; because the deeper they load the ship, the more cargo money 
they get. Prior to the war, there was practically no occasion for 

127130—19 —pt 3 141 



142 


MARINE INSURANCE. 


mandatory load line for vessels going overseas, because we had prac¬ 
tically no overseas merchant marine. Of course the English law pro¬ 
vided for a load line—a “ plimsoll mark,” as it was called—which 
applied only to English ships. But later they passed laws extend¬ 
ing it to foreign ships loading in. English ports. But that in turn 
did not affect us, because we had practically no ships loading there, 
so that the thing has not come up in a good many years. Now, of 
course, since American shipping has greatly increased, that question 
of the load line becomes important. 

Mr. Lehlbach. The shipping flying the American flag at the 
present time, and proceeding to an English port with cargo, and 
discharging and taking a return cargo, has got to have a load line 
marked on it? 

Commodore Bertholf. That is the English law. 

Mr. Edmonds. Is it carried out by the English Government? 

Commodore Bertholf. I think that never came up in any way 
to embarrass any one prior to the war, because all we had were 
the American line ships. But after the war began and w T e commenced 
building up ships over here, then ships flying the American flag 
and carrying cargo did arrive at English ports, and, of course, they 
had to have the load line marked on.tliem, because that is the law over 
there, and it is a very good law. I do not think it is embarrassing 
now because the ships built in this country, prior to the signing of 
the armistice, were built by the Emergency Fleet, and they require 
the load line for their ships. Our law does not require the load line, 
but the Shipping Board does, and it is marked under the rules pro¬ 
mulgated by the British Board oTTrade, so that the load line marked 
now by the American Bureau in this country is marked just the same 
as English vessels are marked. 

Mr. Lehlbach. How about other maritime countries, France and 
Scandanavia ?• 

Commodore Bertholf. They have load-line laws. 

Mr. Lehlbach. Do their load lines correspond with the English 
load lines, or is there a variation ? 

Commodore Bertholf. Not entirely. There is a difference so that 
when the International Conference on Safet}^ at Sea was meeting in 
London, the question was brought up, and it was decided to have 
a subsequent international conference to deal with the load-line ques¬ 
tion. It is a tremendous question. And that was in process. 
The English had a load-line committee investigating the subject, and 
the Secretary of Commerce did the same here, but, of course, it was 
all suspended during the war. 

Mr. Edmonds. Do the Dutch ships have to comply with the Eng¬ 
lish law relating to the load line when they touch at their ports? 

Commodore Bertholf. I can not answer that particularly, but I 
do know that unless the Dutch accept the load line on English ships, 
which is marked under the English law, the Dutch load lines will 
not be accepted by England. 

Mr. Edmonds. In other words, they do accept the load lines of 
other countries, then ? 

Commodore Bertholf. Oh, yes; provided they accept the English 
load line. 

Mr. Lehlbach. Isn’t it like this: If the Dutch load line admits of 
a lesser load than the English law limits, of course, it is acceptable. 


MARINE INSURANCE. 


143 


But supposing the Dutch would allow, by their load line, a greater 
lading of the ships than the English law permits, would England 
then accept the Dutch load line? 

Commodore Bertholf. I can not answer that; but I do not believe 
that it is based entirely on those questions, but on the question of the 
maritime importance of the country with which they are dealing 
and international comity. 

Mr. Lehlbach. And whether it renders nugatory the English law 
by permitting them to load beyond the capacity fixed by the English 
regulations ? 

Commodore Bertholf. In this load-line bill now before Con¬ 
gress, it provides for that particular feature; that is, it covers that 
ground: 

That whenever the Secretary of Commerce shall certify that the laws and 
regulations in force in any foreign country relating to load lines are equally 
effective with the regulations established under this act, the Secretary of Com¬ 
merce may direct, on proof that a vessel of that country has complied with such 
foreign laws and regulations, that such vessel and master and owner shall be 
exempted from compliance with the provisions of this act. 

Mr. Lehlbach. You say if they are equally effective. That means 
that they afford the same degree of protection ? 

Commodore Bertholf. In the opinion of the country that has the 
matter to decide. 

Mr. Chindblom. From what did you read, now. for the purpose of 
the record? 

Commodore Bertholf. That is H. B. 3621. 

Mr. Edmonds. That is the bill Capt. Taylor was asked about yes- 
terda}', and said he would give us in writing his comments on the 
bill. That is right, isn’t it? 

Commodore Bertholf. True, that is just the same bill. 

Mr. Alexander. The onfy effective way to treat this question is by 
international agreement, is not that so ? 

Commodore Bertholf. Yes, sir; undoubtedly. 

Mr. Alexander. At the International Conference on Safety at Sea, 
as you say, provision was made that that should be one of the sub¬ 
jects to be considered at the next conference which was to be held 
in five years. 

Commodore Bertholf. While the only way to arrive at that is by 
international conference, still the United States can go into that 
conference much better if they are backed with a law of this sort on 
their part. 

Mr. Alexander. I agree with you that we ought to have legisla¬ 
tion and not to wait for that conference. 

Mr. Chindblom. You said the Emergency Fleet Corporation put 
load lines on all vessels built by them ? 

Commodore Bertholf. Yes. 

Mr. Chindblom. Did the Shipping Board put a load line on the 
vessels leased by it ? 

Commodore Bertholf. That I can not say, but I think it is fair to 
presume they have required load lines on all vessels they had to do 
with. You are speaking of the vessels leased; you mean American 
vessels leased? 

Mr. Chindblom. Leased by the Shipping Board. 

Commodore Bertholf. I have no doubt that the vessels the Ship¬ 
ping Board have commandeered, leased, and sent abroad, to go into 


144 


MARINE INSURANCE. 


foreign ports where laws require a load line, all have load lines 
marked on them before they go. 

Mr. Edmonds. Has the American Bureau done all of the Shipping 
Board’s work? 

Commodore Bertholf. No, sir. 

Mr. Edmonds. Who else has done it? 

Commodore Bertholf. The British Lloyds. 

Mr. Edmonds. Why? 

Commodore Bertholf. That is the desire of the Shipping Board— 
the Emergency Fleet Corporation. It was apportioned betwen the 
two societies. The American Bureau attended to the load line on all 
ship classed by it and on all ships dually classed. Lloyds marked 
load lines only on the ships exclusively classed by that society. 

Mr. Edmonds. Did you get the major portion of it? 

Commodore Bertholf. We have the major portion of it now. At 
first we did not have. 

Mr. Lazaro. Was the American Bureau equipped to do all the 
work ? 

Commodore Bertholf. In the beginning, no; neither was the Brit¬ 
ish Lloyds. But it did equip itself to do all that was required of it, 
and, of course, it wanted to do it all. It desired to do all of the 
classification, naturally. 

Mr. Chindblom. Was the apportionment based upon the facilities 
or equipment? 

Commodore Bertholf. That I can not say. 

Mr. Lazaro. But you are prepared to do it all now ? 

Commodore Bertholf. Yes, sir. 

Mr. Lehlbach. I believe your force, exclusive of surveyors, has 
been increased in the last three years from 5 in number to 180 ? 

Commodore Bertholf. Yes; that is exclusive of surveyors in this 
country. 

Mr. Edmonds. How is your bureau supported ? 

Commodore Bertholf. It is supported entirely by the fees. 

Mr. Edmonds. Where do these fees come from? 

Commodore Bertholf. They come from the surveys of the ships 
in process of construction and the inspection work and the resurveys 
periodically. Those fees are paid by the shipbuilder unless the con¬ 
tract says they are to be paid by the shipowner. 

Mr. Edmonds. In your connection with the insurance work, the 
underwriters work, who pays the fee to you? You do work in con¬ 
nection with the underwriters, don’t you ? 

Commodore Bertholf. The American bureau’s work is done for 
the shipowner, the shipbuilder, and the underwriter. 

Mr. Edmonds. For the shipowner? 

Commodore Bertholf. And the underwriters place their insur¬ 
ance with due regard to the risk as classified by our bureau. 

Mr. Edmonds. There is no portion of your fees which in any way 
comes from or has an effect on the insurance ? 

Commodore Bertholf. Of course the American bureau gets its 
fees for examining, inspecting, and surveying the ships, and then 
giving its class, and that class is very important to the insurer, to 
the underwriter, when he places the risk. But, of course, that has 
nothing to do with our fees. 


MARINE INSURANCE. 


145 


Mr. Edmonds. But it is really information that costs the under¬ 
writer virtually nothing? 

Commodore Bertholf. Certainly. But it is not only for the in¬ 
formation of the underwriter; the owner can not get his ship or the 
cargo in that ship insured unless it is classed, because an underwriter 
may be asked to place a risk on that ship when it is in a far distant 
port, and he does not know and he can not examine the ship himself. 
It is impossible to do business without classification, and consequently 
they look in the registry book to see how that ship is classed. 

Mr. Lehlbach. Do you examine any ships in case of damage and 
estimate the loss? Is that part of your work, if you are called upon 
to do it? 

Commodore Bertholf. Yes. A vessel is classed, say, by the Ameri¬ 
can bureau, and sustains a damage which requires it to go on the 
dock, or some material damage. They call in the American bureau’s 
surveyor so that he can report on the work and, as that damage is 
repaired, see whether the repairs are made in such shape as to entitle 
her to continue her class. And, of course, a fee is paid for that. 

Mr. Lehlbach. And that is to see after the loss is adjusted that 
the work to make good the damage is proper work? 

Commodore Bertholf. True. 

Mr. Lehlbach. But do } t ou accept employment by shipowners to 
make a survey of a vessel after it is damaged in order to estimate or 
report on the amount or percentage of the loss? 

Commodore Bertholf. No; not as a bureau. Sometimes a sur¬ 
veyor will have permission from the bureau to do that in his private 
capacity for the benefit of the owner. But that is not the American 
bureau’s work at all. 

Mr. Lehlbach. Does the Lloyds registry engage in that kind of 
work in behalf of the owner? 

Commodore Bertholf. I think not. 

Mr. Lehlbach. In order to estimate the loss? 

Commodore Bertholf. I think not. 

Mr. Chindblom. Do you give permission to an exclusive sur¬ 
veyor to do that ? 

Commodore Bertholf. At times; yes. 

Mr. Edmonds. I think that that is a good thing. 

Commodore Bertholf. Yes. 

Mr. Lehlbach. Why is it not feasible, Commodore, for both 
Lloyds, so far as the British ship is concerned, and you, so far as 
American ships are concerned, if you are equipped with the force 
not only in this country but in foreign countries, to make surveys 
for other purposes; so that when a loss occurs your bureau, being an 
impartial bureau, could examine a ship and report as to a loss, and 
have such a report given due weight in the adjustment of the loss? 

Commodore Bertholf. I think that is going a bit beyond the 
function of a classification society. 

Mr. Alexander. Is it not true that the American Bureau of Ship¬ 
ping and the British Lloyds, their function is to survey a ship with 
reference to her seaworthiness and classification, as a basis for ma¬ 
rine insurance; and, if they were to engage in this other work, it 
might in the long run question their impartiality and impeach their 
w ord. 


160770—20-10 


146 


MARINE INSURANCE. 


Commodore Bertholf. That is correct. As you very truly say, 
the function of a classification society is to examine vessels while 
building to determine the class to which they are entitled and to give 
a class as to the structural integrity for the service which the ship 
is expected to perform. Beyond that they do not go. Of course, as 
the vessel gets along in years, it must be surveyed again periodically 
to see if it continues to be in good shape and, when damages have oc¬ 
curred and repairs have been made, to see whether she is entitled to 
continue in that class, because it is on that classification that insur¬ 
ance is based and business is done. And when a man sells a vessel, 
the purchaser wants to know the class of that vessel because that 
gives him an idea of the structural integrity of the vessel. That is 
what the classing is for. 

Mr. Chindblom. It is not primarily for the purpose of assisting in 
placing insurance, is it; it is to give a classification to the ship for all 
purposes ? 

Commodore Bertholf. Of course. But insurance is the main thing. 
A vessel is classed, and the best class, of course, +A-1 -(e), means that 
she is in first-class condition, properly equipped and fit to go to sea 
and to carry dry and perishable cargo to all parts of the world. 
Another vessel may be classed for coastwise trade. That indicates 
she ought not to be sent abroad, and if she were to be allowed to be 
sent abroad I doubt if the insurance people would insure her. They 
are governed by the class for the structural integrity of the ship. 

Mr. Edmonds. You have, we will say at Buenos Aires, probably, 
an exclusive surveyor? 

Commodore Bertholf. Probably. 

Mr. Edmonds. Now, this exclusive surveyor does no other work 
excepting your* work ? 

Commodore Bertholf. He is not permitted to work for anybody 
else excepting us. 

Mr. Edmonds. And only in this line ? 

Commodore Bertholf. In this line. 

Mr. Edmonds. He can not take other work? 

Commodore Bertholf. I think not. 

Mr. Edmonds. You have just employed the man for this work 
alone ? 

Commodore Bertholf. We would not have an exclusive surveyor 
unless we had enough to keep him busy; and when we have an exclu¬ 
sive surveyor he has ample work to keep him busy. 

Mr. Chindblom. And he is paid a salary ? 

Commodore Bertholf. He is paid a salary. Of course, a non¬ 
exclusive surveyor is paid a fee when he performs those services, but, 
as Capt. Taylor said yesterday, a nonexclusive surveyor might also 
be a nonexclusive surveyor for some other classification society. 

Mr. Lehlbach. I understand that classification societies do not 
exist for the purpose of making profits ? 

Commodore Bertholf. Not at all; that is not their purpose. 

Mr. Lehlbach. It is just like a savings institution—simply to 
accommodate a certain public need? 

Commodore Bertholf. The classification society is formed in the 
interest of the shipowners, the shipbuilders, and the ship operators, 
and insurance men, and all those things which touch the American 


MARINE INSURANCE. 


147 


merchant marine; and our members are shipowners, shipbuilders, and 
operators. 

Mr. Chindblom. And also in the interest of charters ? 

Commodore Bertholf. That comes in in the operators. 

Mr. Edmonds. Do you have a legal organization? 

Commodore Bertholf. Oh, yes. 

Mr. Edmonds. I mean, are you incorporated ? 

Commodore Bertholf. We are incorporated in the State of New 
York. 

Mr. Edmonds. And you have a president and a board of directors ? 
Commodore Bertholf. A president and a board of managers. 

Mr. Edmonds. And members? 

Commodore Bertholf. A board of managers, it is called, and then 
the executive committee, a secretary, and all that. 

Mr. Edmonds. Will you give us the names of all the people you 
have? 

Commodore Bertholf. I will put them in the record. I can not 
remember them now. 

Mr. Edmonds. Put them in the record and give us their occupa¬ 
tions ? 

Commodore Bertholf. Yes. 

American Bureau of Shipping, 
officers. 

President, Stevenson Taylor, retired ship and engine builder. 

Vice president, E. P. Bertholf, retired Coast Guard officer. 

Vice president C. A. McAllister retierd Coast Gaurd officer. 

Vice president, A. C. Pessano, president Great Lakes Engineering Works. 
Vice president, F. G. Macomber, of F. G. Macomber Co. (Insurance). 

Vice president, W. H. Todd, shipbuilder, Todd Shipyards Corporation. 

Vice president. L. F. Burke, vice president Marine Department Home In¬ 
surance Co. 

Secretary, J. W. Cantillion, American Bureau of Shipping. 

BOARD OF MANAGERS. 

Herbert Appleton, Director United States Lloyds (Insurance). 

John S. Ashley, Great Lakes Carriers Association, Cleveland, Ohio. 

George J. Baldwin, American International Corporation. 

E. P. Bertholf, American International Corporation. 

Louis F. Burke, American International Corporation. 

Eugene P. Carver, Proctor in Admiralty and former shipowner. 

William G. Coxe, shipbuilder and naval architect, Wilmington, Del. 

Peter H. Crowell, Crowell & Thurlow S. S. Co. 

William A. Dobson, William Cramp & Sons. 

Homer L. Ferguson, Newport News Shipbuilding & Dry Dock Co. 

P. A. S. Franklin, International Mercantile Marine Co. 

William R. Hedge, Boston Insurance Co. . x „ , _ _ . 

Charles L. Hutchinson, Hutchinson & Co. (Transportation), Cleveland, Ohio 
William Livingstone, Great Lakes Carriers Association, Detroit, Mich. 
Frank Gair Macomber, Great Lakes Carriers Association, Detroit, Mich. 
Charles E. Mather, Mather & Co. (Insurance). 

C. A. McAllister, Mather & Co. (Insurance). 

William H. McGee, William H. McGee & Co. (Insurance). 

Cornelius Eldert, Atlantic Mutual Insurance Co. 

J. J. McGivney, Automobile Insurance Co. (Marine). 

Edward P. Morse, shipbuilder, Morse Dry Dock & Repair Co. 

Frank C. Munson, Munson Steamship Co. 

Walter Wood Parsons, Atlantic Mutual Insurance Co. 


148 


MARINE INSURANCE. 


Marvin A. Neeland, New York Shipbuilding Co. 

A. C. Pessano, New York Shipbuilding Co. 

Clayton Platt, Insurance Co. of North America, New York. 
Joseph W. Powell, Bethlehem Shipbuilding Corporation. 

William A. Prime, Willcox, Peck & Hughes. (Insurance). 

H. H. Raymond, Clyde-Mallory S. S. Co. 

Benjamin Rush, Insurance Co. of North America, Philadelphia. 

R. P. Schwerin, retired ship operator. 

Charles Skentelbery, Warren Transportation Corporation. 
Alfred Gilbert Smith, New York & Cuba Mail S. S. Co. 

John H. J. Stewart, retired marine insurance underwriter. 

E. Platt Stratton, retired naval architect. 

Stevenson Taylor, retired naval architect. 

William A. Thompson, jr., Texas Co. (marine department). 
William H. Todd, Texas Co. (marine department). 

Harry A. Wheeler, Union Trust Co., Chicago, Ill. 

EXECUTIVE COMMITTEE. 

* Walter Wood Parsons. 

* Joseph W. Powell. 

*William A. Prime. 

* Alfred Gilbert Smith. 
*William A. Thompson, jr. 

FINANCE AND AUDIT COMMITTEE. 

* Charles E. Mather. 

♦Frank C. Munson. * Walter Wood Parsons. 


♦Homer L. Ferguson 
*William R. Hedge. 
♦Charles E. Mather. 
*'William H. McGee. 


CLASSIFICATION COMMITTEE. 


* H. H. Raymond. 


*William G. Coxe. 

W. J. Davidson, Staten Island, 
S. B. Co. 

Edgerton Parsons, Parsons & 
Eggert, Insurance. 

*Edward P. Morse. 


*Frank C. Munson. 

♦William H. Todd. 

♦Alfred Gilbert Smith. 

Edgar F. Luckenbach, Luckenbacli 
S. S. Co. 


Mr. Edmonds. And then you have members, of course? 

Commodore Bertholf. Yes, members. 

Mr. Edmonds. Do they pay membership fees? 

Commodore Bertholf. No. 

Mr. Edmonds. No membership fees? 

Commodore Bertholf. We do not have to have any membership 
fees; we get the fees for the services rendered. To be sure, if at any 
time any classification society did not receive enough income to pay 
its expenses, somebody would have to dig down to get that money. 
That would come from the members; they would have to contribute. 

Mr. Edmonds. Members of the board or members of the society? 

Commodore Bertholf. The members of the society would have to 
contribute. 

Mr. Edmonds. If a man does not belong to the society, and yet 
owns ships, do you do work for him just the same? 

Commodore Bertholf. Oh, yes. That has nothing to do with it. 

Mr. Lehlbach. That is of no practical advantage to the society 
except, in so far as he has membership, he has a voice in its 
administration. 

Commodore Bertholf. Yes; and then the representative men of 
these different interests must take an interest in the classification 


MARINE INSURANCE. 


149 


society and become members and take an active part in order to 
foster the organization. It is a cooperative thing, you see. 

Mr. Edmonds. Wliat are the qualifications for membership in the 
association—nothing at all? Can anyone make application—and if 
he is a reputable man, he can join? 

Commodore Bertholf. So long as he is reputable and his business 
connects up with this, he can become a member. The membership 
is limited to 100. 

Mr. Edmonds. He does not have to pay any initiation fees? 

Commodore Bertholf. No, sir. 

Mr. Alexander. This 'American bureau is made up of shipowners 
and shipbuilders, and the fees, come from them ? 

Commodore Bertholf. The fees come from them. 

Mr. Alexander. Any shipowner may be a member of the bureau? 

Commodore Bertholf. Oh, yes; of course. 

Mr. Alexander. And for that reason they are apt to see that only 
competent men are employed as officers and surveyors by the bureau 
and that the cost of the survey shall be ample to assure them of good 
work? 

Commodore Bertholf. Certainly. 

Mr. Alexander. And it is not organized for profit, but it is a 
mutual concern ? 

Commodore Bertholf. It is a mutual concern. 

Mr. Alexander. They have to have ships insured ? 

Commodore Bertholf. They have to have ships insured. 

Mr. Alexander. And they have to have them surveyed and classed 
by a bureau that is reputable and that does good thorough work, 
before the marine insurance companies will accept their services? 

. Commodore Bertholf. Certainly. And the classification society 
can exist only if it is efficient; that is all; and it is to the interest to 
all the members of a classification society to see to it that it is efficient 
in its classifications. 

Mr. Edmonds. Could you furnish us with the basic reasons why 
we should have an American bureau in preference to letting Lloyd’s 
do all the work? 

Commodore Bertholf. Yes; I can give you an answer to that in a 
few words—because we are dealing with American ships. Every ele¬ 
ment that goes to make up what is called American shipping should 
be governed and controlled by Americans; otherwise it is not Ameri¬ 
can shipping. There is no reason in the world why American ship¬ 
owners should have their ships classed, insured, or anything else, 
abroad. You can not expect the people abroad to lay awake nights 
to help along American shipping as against their own shipping. 
Therefore all of those elements, the underwriters, the shipowners, 
the ship builders, and the ship operators, should all look to American 
institutions for those things they need. That is fundamental. 
American interests are best served in American institutions. 

Mr. Chindblom. If a foreign classification society wanted to act 
in a way prejudicial to American shipping interests', it could do so, 
could it not? 

Commodore Bertholf. I never knew of any organization that 
could not act prejudicially to some other organization, if it wanted 
to. I would not undertake to outline any modus operandi, but that 
of course is axiomatic. 


150 


MARINE INSURANCE. 


Mr. Edmonds. I agree with you fully, but I wanted to get your 
opinion in the record along with the rest of the testimony. 

Commodore Bertholf. I reckon that everybody else has the same 
opinion. 

Mr. Greene. It was not done heretofore on account of the fact that 
we did not have any merchant marine of sufficient capacity to be 
reckoned with. 

Commodore Bertholf. Oh, they had the Great Lakes registry, and 
those ships were classified by the Great Lakes registry. But that is 
now a part of the American bureau. 

Mr. Greene. You took that under your control? 

Commodore Bertholf. Oh, yes. That was done in the reorganiza¬ 
tion. 

Mr. Greene. Of course, in these various shipyards throughout the 
country the vessels they have been building would come in, under 
this proposed legislation, to be classified? 

Commodore Bertholf. Yes. 

Mr. Chindblom. During this recent expansion of American ship¬ 
ping, have you found any difficulty in engaging the increased number 
of surveyors as fast as you needed them ? 

Commodore Bertholf. That was true in the beginning, but it is 
not true now. And it was true just the same of British Lloyds as 
of the American bureau. 

Mr. Chindblom. They had the same difficulty? 

Commodore Bertholf. Oh, yes; you see shipyards were coming 
up over night, metaphorically speaking, all over the country. They 
had to have technical assistants. The American bureau and the 
British Lloyds also had to have technical assistants, and the field was 
limited. 

Mr. Chindblom. Well, our supply and our facilities were just as 
good as those of any other country ? 

Commodore Bertholf. Just as good. But that condition has gone 
by now and, besides, there has been so much building that lots of 
experience has been gained by it, so that we do not lack for good 
surveyors now. 

Mr. Chindblom. Are the surveyors trained in America ? 

Commodore Bertholf. The greater portion of them are, yes; in 
the technical schools, and then the experience in the various ship¬ 
yards and on the ships at sea, and so forth. 

Mr. Kincheloe. When they get through with that line of inter¬ 
rogation I want to ask you about something else. But I do not want 
to interfere with these gentlemen along that line. 

Mr. Edmonds. I am through. 

Mr. Chindblom. I have nothing further. 

Mr. Kincheloe. Do you agree to the proposition that the foreign 
insurance companies can write insurance cheaper than American ? 

Commodore Bertholf. I do not know anything about insurance. 
I am not an insurance man. 

Mr. Kincheloe. You would not be qualified to speak along; that 
line? 

Commodore Bertholf. No, sir. 

Mr. Kincheloe. If you do not feel qualified, of course, I will not 
interrogate you along that line. 

Commodore Bertholf. No; I could not say a word about that. 


MARINE INSURANCE. 


151 


Mr. Lehlbach. If there are no further questions of the com¬ 
mander, the committee wishes to express its thanks to you for your 
appearance and the information you have given us. 

Is there anyone else present who desires to be heard at this time? 

Mr. Kincheloe. In reading over this hearing, looking over it very 
hurriedly, my recollection is Mr. Ogden was to furnish, as I thought, 
as a part of his hearing, the losses that had occurred in the Shipping 
Board. I do not see it in here. 

Mr. Lehlbach. I will ask the secretary if the detailed statement 
of losses which Mr. Ogden was to furnish has been received. 

Mr. de Tonnancour. That has not been received as yet. He is 
working on that statement now. 

Mr. Lehlbach. He did say it would take a little time, and that will 
be incorporated in the record as soon as it is received. But this has 
come in: I have lvere, which has been transmitted to me as chairman 
by the director of insurance of the United States Shipping Board, the 
form of policy under which the division of insurance covers the in¬ 
surance on steel and wooden ships owned by the Shipping Board. 
Do you wish to incorporate a copy of this form of policy in the 
record ? 

Mr. Edmonds. I think we should put in all the information we 
can get about insurance and let these hearings be as complete a work 
on marine insurance as we can possibly get together. 

Mr. Kincheloe. I think it is very important. 

(The paper referred to is as follows:) 

[Division of Insurance, United States Shipping Board Emergency Fleet Corporation.] 
FORM OF POLICY COVERING STEEL AND WOODEN STEAMERS. 

Upon the body, tackle, apparel, stores, ordnance, munitions, artillery, boats, 

and other furniture, boilers, and machinery of the steamship called the- 

S. S. or by whatsoever name or names the said vessel is or shall be named or 
called; beginning the adventure upon the said vessel, etc., as above, and so shall 
continue and endure during the period of aforesaid, as employment may offer, 
in port and at sea, in docks and graving docks, and on ways, gridirons, and 
pontoons, at all times, in all places, and on all occasions, services, and trades 
whatsoever and wheresoever, under steam or sail; with leave to sail with or 
without pilots, to tow and lie towed, and to assist vessels and/or craft in all 
situations and to any extent, and to go on trial trips. With liberty to discharge, 
exchange, and take on board goods, specie, passengers, and stores, wherever the 
vessel may call at or proceed to, and with liberty to carry goods, live cattle, 
etc., on deck or otherwise, but warranted free of any claim in respect of deck 
cargo. Including all risks of docking, undocking, changing docks, or moving in 
harbor and going on or off gridiron or graving docks as often as may be done 
during the currency of this policy. 

The said ship, etc., for so much as concerns the assured, by agreement between 
the assured and assurers in this policy, are and shall be valued at the sum 
entered in the insurance fund. 

Donkey boilers, winches, cranes, windlasses, steering gear, and electric-light 
apparatus shall be deemed to be part of the hull and not part of the machinery. 

Touching the adventures and perils which we, the said assurers, are contented 
to bear and take upon us. they are of the seas, men-of-war, tire, enemies, pirates, 
rovers, thieves, jettisons, letters of mart and countermart, surprisals, takings 
at sea, arrests, restraints and detainments of all kings, princes, and peoples of 
what nation, condition or quality soever, barratry of the master and mariners, 
explosions, riots, or other causes of whatsoever nature arising either on shore or 
otherwise, causing loss of or injury to the property hereby insured, and of all 
other perils, losses, and misfortunes that have or shall come to the hurt, detri¬ 
ment, or damage of the said ship, etc., or any part thereof. And in case of any 
loss or misfortune it shall be lawful for the assured, their factors, servants, and 


152 


MARINE INSURANCE. 


assigns, to sue, labor, and travel for. in. and about the defense, sateguard. and 
recovery of the said ship, etc., or any part thereof, without prejudice to this 
insurance to the charges whereof the assurers will contribute according to the 
rate and quantity of the sum herein assured. And it is expressly declared and 
agreed that no act of the insurer or insured in recovering, saving, or preserving 
the property injured shall be considered as a waiver or acceptance of aban¬ 
donment. 

This insurance also specially to cover (subject to the tree of average war¬ 
ranty) loss of or damage to hull or machinery, through the negligence of master, 
charterers, mariners, engineers, or pilots, or through explosions, bursting of 
boilers, breakage of shaft, or through any latent defects in the machinery or 
hull, provided such loss or damage has not resulted from want of due diligence 
by the owners of the ship, or any of them, or by tin* manager, masters, mates, 
engineers, pilots, or crew not to be considered as part owners within the 
meaning of this clause should they hold shares in the steamer. 

And it is further agreed that if the ship hereby insured shall come into col¬ 
lision with any other ship or vessel and the assured or charterers shall in con¬ 
sequence thereof become liable to pay and shall pay by way of damages to any 
other person or persons any sum or sums not exceeding in respect of any one 
such collision the value of the ship hereby insured, we, the assurers, will pay 
the assured or charterers such proportion of such sum or sums so paid as our 
subscriptions hereto bear to the value of the ship hereby insured. And in cases 
where the liability of the ship has been contested, with the consent in writing 
of a majority of the underwriters on the hull and/or machinery (in amount), 
we will also pay a like proportion of the costs thereby incurred or paid; but 
when both vessels are to blame, then, unless the liability, of the owners or 
charterers of one or both of such vessels becomes limited by law, claims under 
the collision clause shall be settled on the principle of cross-liabilities as if 
the owners or charterers of each vessel had been compelled to pay to the owner 
or charterers of the other of such vessels such one-half or other proportion of 
the latter’s damages as may have been properly allowed in ascertaining the 
balance or sum payable by or to the assured or charterers in consequence of 
such collision; and it is further agreed that the principles involved in this 
clause shall apply to the case where both vessels are the property, in part or in 
whole, of the same owners or charterers, all questions of responsibility and 
amount of liability as between the two ships being left to decision of a single 
arbitrator, if the parties can agree upon a single arbitrator, or failing such 
agreement, to the decision of arbitrators, one to be appointed by the managing 
owners or charterers of both vessels and one to be appointed by the majority 
(in amount) of underwriters interested in each vessel; the two arbitrators 
chosen to choose a third arbitrator, before entering upon the reference, and the 
decision of such single, or of any two of such three arbitrators, appointed as 
above, to be final and binding; Provided always , That this clause shall in no 
case extend to any sum which the assured or charterers may become liable to 
pay or shall pay for removal of obstructions under statutory powers for injury 
to harbors, wharves, piers, stages, and similar structures, consequent on such 
collision, or in respect of the cargo or engagements of the insured vessel or 
for loss of life or personal injury: And provided also , That in the event of any 
claim being made by charterers under this clause they shall not be entitled to 
recover in respect of any liability to which the owners of the ship, if interested 
in this policy at the time of the collision in question, would not be subject nor 
to a greater extent, than the shipowners would be entitled in such event to 
recover. 

And it is further agreed that in the event of salvage, towage, or other assist¬ 
ance being rendered to the vessel hereby insured by any vessel belonging, in 
part or in whole, to the same owners or charterers the value of such services 
(without regard to the common ownership of the vessels) shall be ascertained 
by arbitration in the manner above provided for under the collision clause, and 
the amount so awarded, so far as applicable to the interest hereby insured, 
shall constitute a charge under this policy. 

General average and salvage charges payable in accordance with York- 
Antwerp rules, 1890, if so provided for in the contract of affreightment. As 
regards matters not provided for in the York-Antwerp rules, 1890 (when the 
contract of affreightment provides for such rules), and also when the contract 
of affreightment does not provide for such rules, general average and salvage 
charges shall be payable in accordance with the laws and usages of the United 
States. Provided always that when an adjustment according to the laws and 


MARINE INSURANCE. 153 

usages of the port of destination is properly demanded by the owners of the 
cargo, general average shall he paid in accordance with same. 

No claim shall be allowed in respect of scraping or painting the vessel’s 
bottom except as provided in Rule of Practice VIII of the Association of 
Average Adjusters of the United States. 

Grounding in the Panama Canal, or in the Suez Canal, or in the Manchester 
Ship Canal or its connections, or in the River Mersey above Rock Ferry Slip, 
or in the River Plate (above Buenos Aires) or its tributaries, or in the Danube, 
Demerara, or Bilbao River, or on the Yenikale or Bilbao Bar, shall not be 
deemed a stranding. 

In no case shall underwriters be liable for unrepaired damage in addition 
to a subsequent total loss sustained during the term covered by this policy. 

In ascertaining whether the vessel is a constructive total loss the insured 
value shall be taken as the repaired value, and nothing in respect of the 
damaged or break-up value of the vessel or wreck shall be taken into account. 

In the event of total or constructive total loss, or claim to be made by the 
underwriters for freight, whether notice of abandonment has been given or not. 

Notwithstanding anything herein contained to the contrary, this policy is 
warranted free from particular average unless amounting to $1,000. 

The warranty and conditions as to average $1,000 to be applicable to each 
voyage as if separately insured, and a voyage shall be deemed to commence at 
one of the following periods to be selected by the assured when making up the 
claim, viz: At any time at which the vessel (1) begins to load cargo or (2) 
sails in ballast to a loading port. Such voyage shall be deemed to continue 
during the ensuing period until either she has made one outward and one 
homeward passage (including an intermediate ballast passage, if made), or 
has carried and discharged two cargoes, whichever may first happen, and fur¬ 
ther, in either case, until she begins to load a subsequent cargo or sails in bal¬ 
last for a loading port. When the vessel sails in ballast to effect damage repair 
such sailing shall not be deemed to be a sailing for a loading port, although 
she loads at the repairing port. In calculating the $1,000 above referred to, 
particular average occurring outside the period covered by this policy may be 
added to particular average occurring within such period provided it occurs upon 
the same voyage (as above defined), but only that portion of the claim arising 
within such period shall be recoverable hereon. The commencement of a voy¬ 
age shall not be so fixed as to overlap another voyage on which a claim is 
made on this or the preceding policy. 

Warranted free of capture, seizure, arrest, restraint, or detainment, and 
the consequences thereof, or of any attempt thereat (piracy excepted), and 
also from all consequences of hositilities or warlike operations, whether before 
or after declaration of war. 

(The subcommittee thereupon adjourned to meet at the call of 
the chairman.) 






/ 

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• 















■ 



MARINE INSURANCE. 


Subcommittee of the Committee on the 

Merchant Marine and Fisheries, 

House of Representatives, 

W ashing ton, D. C., Thursday, September 25,1919. 

The subcommittee met at 10 o’clock a. m., Hon. George W. Ed¬ 
monds, presiding. 

Mr. Edmonds. For the information of the members of the com¬ 
mittee and the other gentlemen present, I have just received a 
telegram from Chairman Lehlbach, in which he states: “ Kindly 
take charge of insurance investigation. I am unavoidably detained 
in Newark.” That being the case, and being the next member on the 
committee, I presume I will have to take charge of the hearing to-day. 

For the benefit of you insurance gentlemen, I would like to state 
this subcommittee was instructed, with full power, by the Merchant 
Marine Committee to investigate the question of marine insurance. 
It was not desired by the Merchant Marine Committee to investigate 
marine insurance with any harmful ideas. The idea was to investi¬ 
gate marine insurance to see if something could not be done to keep 
marine insurance, as far as possible, in this country and what condi¬ 
tions prevailed at the present time to prevent American fire insur¬ 
ance companies, and other companies, that could go into this business, 
from going into the business. 

Along that line, and with the idea of securing some basic informa¬ 
tion, we sent out a number of questionnaires. These questionnaires, 
as far as desired by those who filled them in, will be kept confidential. 
Of course, they are open to the members of the committee and pos¬ 
sibly some of the information may be disseminated; but there are cer¬ 
tain portions of these questionnaires where several parties desire their 
information to be kept confidential, and that will be done. The gen¬ 
tlemen who are representing these insurance companies do not need to 
worry that we are trying to make any destructive legislation; we are 
trying to make constructive legislation and trying to benefit these 
men who have and will and can build up the American merchant 
marine insurance. Therefore, we are bringing you here with the idea 
of telling you what the result of our investigation was, in a general 
way, through the questionnaires and, by asking you questions, to 
have you enlighten us so as to see whether we can not in some way 
frame" legislation that will be beneficial to American marine insur¬ 
ance. We are very little interested in English marine insurance and 
other foreign marine insurance. What we want to do is to produce 
legislation that will build up American marine insurance. 

Now, we are going to look to you men, who are Americans, to help 
us build it up. A great many people think when Congress starts out 
on an investigation, that we are starting out on an exploring expedi- 

155 



156 


MARINE INSURANCE. 


tion with the idea of destroying something. We are not. The action 
of the Merchant Marine Committee in connection with the shipping 
business, in removing and not providing any regulatory features, but 
in providing supervisory features, in the passage of the shipping act, 
will tell you that the Merchant Marine Committee has not and never 
will destroy any beneficial influences in any business. I do not 
think—I know there is no desire anywhere of any member of the com¬ 
mittee to destroy; it is to help build up. We want you gentlemen to 
help us build up the marine insurance in this country. And, as I say, 
we have no desire to build it up anywhere else. 

Now, the committee have prepared a statement, which I have no 
doubt you gentlemen will be glad to know, and which I will read to 
you before you put in any testimony, but I want to say we had con¬ 
siderable difficulty in getting this together, although I think it is 
fairly accurate. It has been very hard to get any information in 
regard to marine insurance. It is the most secretive business I ever 
had anything to do with. I used to think I was in a secretive busi¬ 
ness when I was in the coal business, but it does not touch the marine 
insurance business. I will read this report to you: 

Owing to the absence of available public records indicating the real status of 
marine insurance, the committee found it necessary to direct a detailed ques¬ 
tionnaire to all domestic and foreign-marine insurance companies operating in 
the United States. The published records of all State insurance departments 
deal only with general totals for ‘ Marine and inland ’ insurance, and these 
figures are misleading since they include various forms of inland insurance, 
such as motor vehicle, tourist baggage, and registered mail insurance. The 
committee, therefore, had these various forms of insurance separated through 
an analysis of the published records and, where this was impossible, through 
correspondence with the companies. In fact, it was only through correspond¬ 
ence that one could even ascertain the number of American and foreign com¬ 
panies transacting marine insurance in this country. Moreover, no public rec¬ 
ords exist anywhere which differentiate the volume of marine insurance into 
hull and freight cargo, and builders’ risk insurance, or which show the volume 
of marine insurance in the foreign trade as distinguished from coastwise and 
inland insurance. This information had to be obtained through the committee’s 
questionnaire. 


NUMBER AND IMPORTANCE OF AMERICAN COMPANIES. 

It is common to hear emphasis placed upon the large number of American 
companies transacting marine insurance. State records indicated a total of 186 
marine insurance companies and associations (137 domestic and 49 foreign) 
transacting marine and inland insurance in the United States. To all of these 
the committee directed its questionnaire, and replies have been received thus 
far from all except eight domestic and four foreign companies. After eliminat¬ 
ing the items of motor vehicle, tourist baggage, and registered mail insurance, 
it appears that only 128 companies and associations transact marine insurance 
in this country, and of this number 40 are foreign companies and associations 
and 88 domestic. But of the 88 domestic companies 12 are not direct-writing 
companies and receive all their business as reinsurance from other companies; 
2 are direct-writing companies but reinsure all their business ; 1 transacts only an 
insignificant amount of builders’ risk insurance; 3 recently discontinued writing 
marine insurance; 3 have been merely organized and have not yet begun the 
transaction of business; and 6 confine themselves solely to inland and coastwise 
waters and transact no ocean marine insurance. In other words, it appears that 
there are only 63 direct writing American companies participating in ocean 
marine insurance, and 69 if both internal and foreign commerce are consid¬ 
ered. But of the 63 direct-writing American companies, 6 are controlled by 
foreign companies through stock ownership or a common management, while at 
least 5 more share a very intimate and sympathetic relation to foreign interests 
by virtue of having directors or leading stockholders resident abroad, or by 
having a management very closely affiliated with the management of foreign 


MARINE INSURANCE. 


157 


companies operating in this country, together with reinsurance agreements with 
said foreign companies covering a very large proportion of the total business 
written. Two additional American companies, newly created and not yet writ¬ 
ing business, it should be added, are also foreign controlled. 

But the danger of emphasizing the number of American marine companies is 
further revealed by the extent to which a few transact the lion’s share of the 
business. Of the uncontrolled American companies 2 receive nearly one-fourth 
of the total net premium income received by all the companies from actual 
marine insurance, after deducting the motor-vehicle, tourist-baggage, and 
registered-mail business; 5, over four-tenths; 10, nearly two-thirds, and 15, 
three-fourths. To show the small way in which many of the companies par¬ 
ticipate in the marine underwriting, it may be stated that 14 uncontrolled 
companies derived during 1918 less than a total of 1 per cent of the entire 
net premium income of all uncontrolled American companies from actual marine 
insurance; 26 companies received a total of only 4 per cent, and 36 companies 
(about one-half of the total number) only 8 per cent. 

Moreover, of all the 88 American companies only 11 confined themselves to 
marine insurance, and 5 of these are foreign controlled or very closely affili¬ 
ated by management and reinsurance arrangements. Of the uncontrolled com¬ 
panies approximately one-fifth derived 96 per cent of their total net premium 
income from fire insurance and from inland insurance other than marine; 
one-half, at least 90 per cent; two-thirds, at least 80 per cent, and three-fourths, 
at least 70 per cent. Excluding the 10 leading companies, all the remaining 
uncontrolled American companies received approximately only 10 per cent of 
Iheir net premium income from marine insurance, while 5 per cent was received 
from motor-vehicle, tourist-baggage, and registered-mail insurance, and 85 per 
cent from fire and its allied forms of insurance. 

DISTRIBUTION OF AMERICAN MARINE INSURANCE BETWEEN DOMESTIC AND 

FOREIGN COMPANIES. 

Marine risks written and renewed during 191S by all companies, domestic and 
foreign, operating in the United States, amounted to $71,258,305,186. This 
total was arrived at after making an approximate deduction for motor-vehicle, 
tourist-baggage, and registered-mail insurance on the basis of premium income 
received from these sources as compared with the total premium income on all 
“ marine ” and “ inland ” business. This process, it is conceded, is somewhat 
subject to criticism, but premium figures constituted the only data available, 
and, in any case, one uniform plan for making the deduction was applied to 
all companies. Of the foregoing total, branch offices of admitted foreign com¬ 
panies wrote or renewed $38,613,473,250, or 13 per cent, and other American 
companies $23,400,821,248, or 32,8 per cent. 

After deducting motor-vehicle, tourist-baggage, and registered-mail premiums 
the net marine premiums of all American and foreign companies operating in 
the United States, as reported by the State insurance departments, aggregated 
approximately $108,648,129 for 1918. Of this total, branch offices of admitted 
foreign companies received $39,450,085, or 36.3 per cent; American companies 
controlled or very closely allied with foreign companies, $6,483,373, or 6 per 
cent, and all other American companies, $62,714,671, or 57.7 per cent. Similar 
compilations were made as regards both net premiums and risks, written or 
renewed, for the years 1917 and 1913. Substantially the same relative im¬ 
portance of American and foreign companies was found to exist, although the 
total volume of business by 1918 had, of course, expanded enormously as com¬ 
pared with 1913. Such change as did occur since 1913 in the relative impor¬ 
tance of the two classes of companies appears to have been in the direction of 
greater foreign control. 

From the standpoint of net premium income—the most favorable showing- 
it would appear that uncontrolled American companies wrote, during 1918, 
somewhat over half of the marine insurance transacted in the United States. 
But the committee has received estimates from competent underwriters to the 
effect that at least 20 per cent of all marine insurance originating in this 
country is exported directly abroad to be placed through nonadmitted under¬ 
writers or with the home offices of admitted foreign companies. Such exported 
business does not appear in any of the reported data on this side. When this 
fact is taken into account, it would appear conservative to conclude that con¬ 
siderably more than one-lialf of American marine insurance is conducted 
through foreign channels. Moreover, a considerable amount of marine insur- 


158 


MARINE INSURANCE. 


ance originating abroad is reinsured in or assigned directly to American com¬ 
panies by foreign underwriters, this amount appearing in the published records 
of American companies, although not representing American business. 

It should also be noted that many American companies placed a very sub¬ 
stantial part of their reinsurance with foreign underwriters. In this respect 
the committee’s inquiry is not yet complete. Thus far 45 companies have 
reported the placing of reinsurance during 1918 with foreign companies, as 
compared with 19 who reported no such reinsurance. Of the 45 companies, 9 
placed 10 per cent or less of their total reinsurance (based on premiums) with 
foreign companies; 4 between 10 and 20 per cent; 4 between 20 and 30 per 
cent; 2 between 30 and 40 per cent; 7 between 40 and 50 per cent; 4 between 
50 and 60 per cent; 5 between 60 and 70 per cent: 4 between 70 and 80 per cent; 
2 (one of which ranks among the very largest American companies and which 
reinsured 60 per cent of its entire business) between 90 and 95 per cent; and 
4 (two of which are foreign owned) 100 per cent. 

Twenty companies, which have thus far reported on the matter, placed rein¬ 
surance during 1918 with nonadmitted companies, or with the foreign offices 
of companies possessing branches in this country, to the extent of $7,228,300 
of premiums, and named 68 nonadmitted foreign companies, located in 10 
different countries, with whom such reinsurance was placed. But the total 
of such reinsurance is no doubt considerably larger, since 17 American com¬ 
panies reinsuring in foreign companies, and several of them large and foreign- 
allied, have not yet separated their reinsurance with foreign companies as be¬ 
tween admitted and nonadmitted offices. Of the 20 companies 6 placed all 
their reinsurance with foreign companies with nonadmitted companies or 
with the foreign offices of admitted companies; 5 placed, respectively, 95, 77, 
70, 67, and 42 per cent; and 3 between 30 and 40 per cent. 

CLASSIFICATION OF THE BUSINESS. 

Replies to the committee’s questionnaire clearly indicate that American com¬ 
panies cater primarily to cargo insurance and do not, as a general proposition, 
emphasize hull insurance. A number of companies expressed their inability 
to separate their business into respective proportions for hull and freight, 
cargo and builders’ risk insurance. Thus far, however, 63 American com¬ 
panies have furnished the committee with a detailed classification of their 
business. Of these 63 companies, 4 transacted no hull and freight insur¬ 
ance at all; 12 derived less than 10 per cent of their total marine premium 
income from hull and freight insurance; 19 less than 15 per cent; 24 less than 
20 per cent; 28 (nearly one-half the total number) less than 33 per cent. Almost 
all of these companies received nearly all of the balance of their marine 
premium income from cargo insurance. The same situation is also revealed 
by the reports furnished the committee by the American branch offices of 
foreign admitted companies. But the committee has been advised by com¬ 
petent underwriters that the practice of exporting marine insurance directly 
to the foreign market is resorted to particularly in the case of hull insurance. 
Some of these estimates are to the effect that at least 50 per cent of all 
American hull insurance is thus exported. 

The unsatisfactory condition surrounding hull insurance is freely confirmed by 
American companies in their replies to the committee’s questionnaire. Fifty- 
one of the sixty-three American companies, already referred to, report that they 
do not emphasize hull insurance. Twelve companies explain that they have 
found their hull business to be unprofitable; 9 state that they do not emphasize 
hull insurance and write it very sparingly because of the hopeless outlook for 
this class of business at the time they began writing marine insurance; 14 re¬ 
port that they found only a small profit in hull insurance in prewar times, 
while at present the situation is still less hopeful because the enormous in¬ 
crease in the cost of repairs and salving has been accompanied by little or no 
increase in premiums over those of prewar years; and 16 state that competi¬ 
tion of companies located in foreign countries, and the facility with which 
owners and brokers export marine insurance to such countries, precludes any 
hope of success. Several companies report that they are endeavoring to reduce 
their hull business, and one important company explains that its hull business, 
instead of constituting 72 per cent of its whole business in 1918 will be around 
25 per cent only in 1919, since it is materially curtailing this class of business 
on account of competition with the foreign insurance market which escapes all 
Government and State taxes. 


MARINE INSURANCE. 


159 


The situation explained for hull insurance is practically duplicated in the 
held of builders’ risk insurance. A number of companies express their inability 
to separate this class of business; but thus far 53 American companies have 
furnished the proportion of their premium income from marine insurance de¬ 
rived from builders’ risk insurance. Twelve report that they transact no such 
business; 6 received merely the pittance of one-half of 1 per cent of their 
marine premium income from this source; 7 between one-half of 1 and 1 per 
cent; 4 between 1 and 2 per cent; 6 between 2 and 3 per cent; 5 between 
3 and 4 per cent; 4 between 4 and 5 per cent; 4 between 6 and 7 per cent; 
1 between 8 and 9 per cent; 3 (all foreign-controlled companies) 10 per cent; 
and 1 (a foreign-owned company) 34 per cent. Of the uncontrolled companies, 
18 (over one-third of the total number who have reported thus far) received 
one-half of 1 per cent or less of their marine premium income from builders’ 
risk insurance; 25 (one-half of the total number) 1 per cent or less; and 35 
(nearly three-fourths of the total) only 3 per cent or less. Here, again, much 
the same situation is shown by the reports received from the American branch 
offices of foreign-controlled companies. Bur, as in the case of hull insurance, 
the committee has been advised by competent underwriters that the practice of 
exporting insurance directly to the foreign market is also resorted to very 
largely in the case of builders’ risk insurance. 

As in the case of hull business, American companies freely confirm the un¬ 
satisfactory conditions surrounding builders’ risk insurance. Eight companies 
state that the field has been greatly restricted through the operations of the 
insurance fund of the Emergency Fleet Corporation of the United States Ship¬ 
ping Board; 20 companies report that they do not emphasize such insurance 
because they see no opportunity of securing any business except at unprofitable 
rates; 9 explain that when they began writing marine insurance they found 
that builders’ risks were almost wholly going to companies located in foreign 
countries, because, among other reasons, such companies may assume hazards 
which are forbidden to American companies by the laws of the various States 
in this country ; and 9 report that companies in foreign countries, who escape 
taxes and other expenditures which American companies must meet, seem 
anxious to have the business at rates which they (the American companies) 
would find unprofitable. 

Gentlemen, that is the report of the committee up to elate, and it is 
for your information. 

I believe it was arranged this morning that Mr. Rush would be 
our first witness, and, Mr. Rush, I am required by the committee to 
swear you; so, you will please be sworn. 

TESTIMONY OF MR. BENJAMIN RUSH, PHILADELPHIA, PA., PRESI¬ 
DENT OF THE INSURANCE CO. OF NORTH AMERICA, AND THE 

ALLIANCE INSURANCE CO. OF PHILADELPHIA. 

(The witness was sworn by Mr. Edmonds.) 

Mr. Rush. Before I begin, gentlemen, I would like to present to 
the chairman the original report of the Association of the Marine 
Underwriters of the United States, duly signed by me as president, 
and attested by the secretary. I have no doubt you have already 
received advance copies. 

(The report submited by the witness is as follows:) 

Mr. Lehlbach, 

Chairman subcommittee on miscellaneous business of the 

Committee on Merchant Marine and Fisheries. 

The Association of Marine Underwriters of tlie United States, in response 
to the request of this committee, conveyed by Mr. Hedge, has given the ques¬ 
tion of suggested legislation whereby the position of the marine insurance 
market may be strengthened, their most careful consideration. 

1. It must be borne in mind that the American marine insurance facilities 
have just undergone a large expansion, so that they are now approximately 
adequate to take care of the American ship owner and the American merchant. 


160 


MARINE INSURANCE. 


Its growth lias been steady during the past decade, but, of course, has been 
considerably accelerated by the increased volume of foreign trade during recent 
years. This increase has accrued to the American marine insurance market 
in spite of its disabilities. The disabilities under which the American marine 
insurance companies have suffered in the past have been: 

2. The absence of any considerable volume of American hull insurance due 
to the fact that few vessels registered under the American flag have been en¬ 
gaged in world-wide commerce. 

3. They have to compete with the marine insurance markets of the world, 
and their principal competitors are those whose Governments impose a mini¬ 
mum restrictive legislation and taxation. 

Taxation. —They, together with the agencies of foreign companies regularly 
entered in the United States, pay taxes on premium income in the United 
States, whereas their aforesaid competitors in foreign countries are taxed on 
net profits. 

Example .—As an illustration, a hull insured for $100,000 at 5 per cent in the 
United States, pays a tax on the premium of approximately $200, against about 
$25 in England. They are required to keep substantial reserves and deposits 
in more than one State for the security of policy holders. A material volume of 
marine business is placed abroad with companies either not entered in the 
United States or through the home offices of foreign companies which are en¬ 
tered in the United States, thus escaping the payment of taxes imposed upon 
American marine insurance. 

4. Regulations .—The companies suffer a handicap owing to the fact that 
they have to operate under the laws of various States and these laws are not 
uniform, and are often conflicting and appear in many cases to be drawn pri¬ 
marily with regard to the regulations of fire rather than marine insurance. 
This not only hampers the activities of the companies, but involves them in 
expenses, necessitated by the segregation and the preparation of separate 
figures for each State; the figures for one State have to be made up on a dif¬ 
ferent basis from those for another State. Their foreign competitors are 
under no such disability. It is submitted that this is prejudicial to the interests 
not only of the American underwriter, but to the commerce of the United 
States, as in its essence commerce is and must be international, the American 
merchant, marine underwriter, and shipowner must be prepared to meet the 
competition of other nations throughout the world, and this fact must be rec¬ 
ognized in all legislation, State or national, dealing with insurance upon com¬ 
merce. 

Considering these matters in order, the association, therefore, makes the 
following recommendations r 

1. As regards volume of business. This requires no action by Congress. 
Hull insurance is one of the foundations of marine insurance, and all that 
the American market requires is a diversified volume of this business. This 
result can only be attained through the growth of the American merchant 
marine and foreign trade, and by the development in this country of the senti¬ 
ment of American insurance being placed with American insurance com¬ 
panies. 

2. Taxation .—This association feels that the disabilities created by a premium 
tax could best be met by an arrangement which would abolish the taxation 
on premiums of marine insurance business, substituting therefor a tax on 
net profits, thereby placing it on an equal basis with its foreign competitors. 
If this proves to be impracticable it is felt that an equalizing tax should be 
imposed upon any marine insurance placed in a foreign market adequate 
to place it on an equal cost basis with the business which is done by Amer¬ 
ican companies, and that some more perfect plan of collecting this tax than 
that provided for in the present revenue bill be devised. The question of 
what is an adequate tax and the proper method of enforcement, might with 
advantage be investigated by the committee, subsequently suggested in para¬ 
graph No. 4. 

This association believes that legislation designed to force the placing of 
marine insurance exclusively with American companies would be unwise and 
would probably result in foreign buyers making their purchases on the basis 
of cost and freight, or free on board shipping port, thus permitting foreign 
buyers to arrange their own marine insurance abroad with the result that 
American marine insurance underwriters would lose a considerable portion 
of the export business. Foreign sellers could easily arrange to sell on terms 


MARINE INSURANCE. 


161 


of cost, insurance and freight thus causing loss to American companies of a 
considerable portion of the marine insurance on import business. 

3. Regulations .—As regards the disabilities arising both from the present 
system of taxation, and from the multiplicity of regulations under the various 
laws of the different States, this association feels that this can only be over¬ 
come by uniform regulations by the States. The limitations imposed by the 
Constitution and the decision of the Supreme Court preclude the taking away of 
this authority from the States and vesting it in the Federal Government. 

4. The association feels that by reason of the constitutional control exer¬ 
cised by the various States, the Federal Government is hampered in adopting 
any action which could be of material assistance in stimulating the develop¬ 
ment of American marine insurance. However, they do feel that the appoint¬ 
ment of a committee by Congress composed of men thoroughly familiar with 
the principles of marine insurance and its practical application to draft a 
model law for the District of Columbia and the enactment of this law by 
Congress, would provide a basis for the standardization of State laws. This 
would ultimately prove of great value to the American shipowner, American 
commerce, and American marine insurance companies. 

The enactment of such a law alter a study by competent experts would 
undoubtedly have great weight with the Insurance Departments and legislators 
of the various States. The association hopes that with this powerful illus¬ 
tration the principal maritime States would be disposed to enact similar uni¬ 
form legislation dealing with this important subject, thus recognizing its na¬ 
tional and international importance. 

The association also desires to express its approval of the provisions for fix¬ 
ing load lines and free board as provided in H. It. 3G21 (Alexander bill), and 
hope that they may be enacted into law. 

Association of Marine Underwriters of the United States, 
By Benjamin Rush, President. 

Attest: 

F. Hosborn, Secretary. 

September 15, 1919. 

Mr. Edmonds. Do you want to make any statement on the sit¬ 
uation in marine insurance? 

Mr. Rush. Yes; gentlemen, I think it perhaps might be wise to 
do so. In the first place, I want to say for myself and all the other 
marine insurance companies I have had any association with, that 
they desire me to express their extreme gratification in the action 
of this committee in coming together and seeing what to do to help 
marine insurance; not so much for the advantage of their own stock¬ 
holders, but because it is a vital part of the work which will have 
to be done to put back the American merchant marine where it 
should be. 

Banking, ship owning, and marine insurance, taken together, are 
the three cords which are necessary to be intertwined in order to get 
a profitable and healthy merchant marine and to provide a healthy 
trade. Consequently we think you gentlemen are doing an extremely 
valuable service in devoting yourselves to constructive legislation 
regarding it. 

Now, as regards the question of helping the marine insurance to 
fulfill its part, the companies composing the association of marine 
underwriters of the United States, whose report is before you, held 
several meetings to discuss this question in full association. They 
then decided they would do better if they delegated that to a com¬ 
mittee, which they did, and they made me chairman of the com¬ 
mittee. That committee was composed, I think, of the leading mem¬ 
bers of the marine insurance business of the United States. We 
met together. We were of course familiar with most of the matter 
you have just brought out, Mr Chairman, and we decided to make 
the report which you have received. 


100770—20-11 



162 


MARINE INSURANCE. 


Marine insurance is a very liquid subject; naturally so. The 
point which I want to emphasize to you gentlemen is that there 
are two ends to every marine insurance transaction—one in the 
United States; one in some foreign country. Furthermore, there is 
no law of the United States; there is no law of any State in the 
United States, and I can see no possibility of any law being enacted 
which makes it incumbent for any citizen of the United States 
to insure his property if he does not want to. 

Starting with those two premises, let me outline to you the process 
of placing a marine risk. A merchant in Chicago, Atlanta, San 
Francisco, New York, or wherever you choose, has a lot of insurance 
to place on merchandise, either going from the United States or 
coming into the United States. He goes to his insurance broker 
and says, “ I want this merchandise of mine covered against marine 
risks.” That broker sounds the marine market for the cheapest rate. 
The biggest market, of course, is in New York. He will try that 
first; he will go down the line of the companies to find out the best 
rate and the best condition for that client of his, wherever he may 
be. He will also send a cable to his correspondent, presumably in 
London, to find out what the foreign rate is. That correspondent 
in London is in touch with the insurance market in France, Spain, 
China, and throughout the maritime world. If he gets a rate that 
is as good as the foreign rate, or possibly he may be willing to pay 
a little bit more for an American policy, he will place his business 
with an American company; but if there is a difference in favor of 
the foreign underwriter, he tells his correspondent on the other side 
(either the shipper or the importer on the other side), “ You attend 
to that insurance for me,” and it disappears from the American 
market. Therefore, all American marine insurance is obliged to 
compete with the insurance market of the world. I think I want 
to say right here that it is just and proper that it should do so; be¬ 
cause if it did not do it, if there was a protective tariff erected around 
American insurance companies—supposing it was possible to do such 
a thing, which I doubt, but supposing it was possible—it might 
result in the insurance rates for American merchants being higher 
than the insurance rates for the merchants of England, France, Ger¬ 
many, or any foreign country. That would be greatly to the detri¬ 
ment of American commerce; and I, as an American insurance man, 
no matter if it would put money in my pocket, have no desire to see 
that thing come about. 

Mr. Edmonds. Mr. Rush, the committee have prepared a line of 
questions Mr. Lehlbach was going to ask you, and I suppose I will 
have to ask them. I may be a little slow about it. During our 
investigation, we found that there were a number of associations 
between marine insurance men. 

Mr. Rush. Yes. 

Mr. Edmonds. I presume that was found necessary in the business, 
was it? 

Mr. Rush. It was, so we could get a consensus of opinion on any 
important point. 

Mr. Edmonds. When Mr. McGee was here, we seemed to be unable 
to find out exactly how rates were made. Do not these associations 
make rates? 

Mr. Rush. Hardly any of them, sir. 


MARINE INSURANCE. 


163 


Mr. Edmonds. How about the American Hull Association? 

Mr. Rush. They recommend rates; they do not make them. You 
have no obligation to accept any rate if you do not want to. 

Mr. Edmonds. Y ou are a member of that association ? 

Mr. Rush. No, sir. 

Mr. Edmonds. You were? 

Mr. Rush. I was. 

Mr. Edmonds. You resigned from it? 

Mr. Rush. I resigned. 

Mr. Edmonds. Has the resignation been accepted? 

Mr. Rush. Oh, it was some time ago. 

Mr. Edmonds. Has your resignation been accepted? 

Mr. Rush. I do not know. I do not care whether they have 
accepted it or not. 

Mr. Edmonds. You are not a member of the association now? 

Mr. Rush. No, sir. 

Mr. Edmonds. Who is the head of that association now? 

Mr. Rush. I do not know, sir. 

Mr. Edmonds. Mr. McGee? 

Mr. Rush. I do not know, sir. Briefly, I will state as regards 
that, Mr. Chairman, we found their rates were so low that we could 
not make any money on them. 

Mr. Chindblom. What do you mean by their rate; the rate they 
fixed? 

Mr. Rush. The rate they recommended. 

Mr. Chindblom. Are you coming to the question as to just how 
they recommended those rates? 

Mr. Edmonds. Yes. Y r ou understand we are not criticizing the 
making of rates; somebody had to make rates one way or the other. 

Mr. Rush. I want to tell you just how they do it, Mr. Chairman. 

Mr. Edmonds. That is what we want to get at. The American 
Hull Association fixed rates or recommended rates? 

Mr. Rush. Recommended rates; yes. 

Mr. Edmonds. And then it was virtually a gentlemen’s agreement 
among the members to keep those rates ? 

Mr. Rush. Yes. 

Mr. Edmonds. Of course, there was nothing obligatory about it? 

Mr. Rush. Nothing obligatory. 

Mr. Edmonds. When you were a member of the association, who 
were the headmen in the association. 

Mr. Rush. Well, I should say Mr. Chubb was one, and the agents 
of the Fireman’s Fund of San Francisco had a good deal to say. 

Mr. Edmonds. Was Mr. Fowler a member? 

Mr. Rush. I do not like to testify, sir. I do not remember. 

Mr. Edmonds. Mr. Fowler was formerly chairman of that, was 
he not? 

Mr. Rush. He represents some English companies. 

Mr. Edmonds. Was Mr. Appleton a member? 

Mr. Rush. I think so. 

Mr. Edmonds, They were virtually the four large members in that 
association—Fowler, Chubb, Appleton, and Simpson? 

Mr. Rush. I can not testify to that, Mr. Chairman, because there 
was not supposed to be anybody—everybody had a free speech in 
the thing, to say just what they thought. 


164 


MARINE INSURANCE. 


Mr. Edmonds. Didn’t you have an organization? 

Mr. Rush. We would have a meeting, just as you gentlemen are 
meeting here, and the question of a rate would come up, and some¬ 
body said what do you think it is worth, and we took the surveys 
and looked them over, and the original cost to build, and the rating* 
and we made a review of the condition of the market, and usually 
we found we were up against the foreign market. 

Mr. Edmonds. You had to take that into consideration in the 
rate? 

Mr. Rush. Yes. 

Mr. Edmonds. Now, how was this rate worked out? 

Mr. Rush. You understand every insurance company keeps a 
very careful book account of its insurance business, what is called 
a classification, so as to see what rates w T e ought to charge and ad¬ 
justing the rates between man and man, so that one profitable gen¬ 
tleman shall not pay for the losing gentleman, but to see that every 
man, so far as can be done, pays his fair share. Consequently, when a 
fleet comes up, we take his records and see what he has done for the 
past five years, and if he has been losing, we try to cut out the 
losses he has, and see if we can not get some plan whereby he won’t 
have so many losses. And if we get by with that, we renew the 
fleet. We always have to consider what the owners of that fleet 
can do in other markets. They are in close touch with the foreign 
markets, in just as close touch as we are, and it is a very simple 
thing to go to their broker, if they think our rate is too high, or if 
they think they can do better, and say, “Take it over to London, 
or to Hamburg before the war, and place some of the business there.” 
We always have to bear that in mind. 

And one of the reasons it is possible to place unprofitable insur¬ 
ance in the London markets is the fact that those large London 
brokers have business which is not American and which is profit¬ 
able, and they will go to their clients, to the insurance people in 
London, and say, “ You will have to take this unprofitable business 
on the American fleet, or else we won’t give you the profitable busi¬ 
ness on the English ”; and they offer them one in one hand and one 
in the other. 

Mr. Edmonds. In that connection, do the English cut the rates of 
this country so as to get the hull insurance? 

Mr. Rush. They write it for less than we do here. 

Mr. Edmonds. Do they write for less than they write their own? 

Mr. Rush. I do not think so. 

Mr. Edmonds. In other words, their rate is a stable rate the world 
over? 

Mr. Rush. Their rate is a little bit lower. 

Mr. Edmonds. Their rate in London is lower? 

Mr. Rush. Yes. 

Mr. Edmonds. Is that because they are able to do the work 
cheaper ? 

Mr. Rush. I think they have an edge on use in expenses, as that 
report shows. 

Mr. Edmonds. That possibly might be true, considering the 
amount of insurance exported. 

Mr. Rush. Yes. 


MARINE INSURANCE. 


165 


Mr. Edmonds. Then the Hull Association considered recently there 
was no use of their recommending rates any more for the hull in¬ 
surance, and they just went out of business? 

Mr. Rush. That is right; it was a waste of time. 

Mr. Edmonds. I presume that the statement we made here in our 
report, which Ave found very evident, about exporting insurance, 
is true ? 

Mr. Rush. I think a good deal of it is true, sir. 

Mr. Edmonds. When I speak of exporting insurance, I do not 
mean taking it here and reinsuring on the other side; I mean they 
take it out here and we have no record, virtually, on this side of the 
water of what is sent over to the other side to be insured. 

Mr. Rush. That would be a broker’s transaction—not an under¬ 
writer’s transaction. 

Mr. Edmonds. You know there is a good bit of that goes on? 

Mr. Rush. Oh, yes. 

Mr. Edmonds. Probably most of the hull insurance is done that 
way to-day? 

Mr. Rush. The American underwriter generally is shut out very 
completely. Of course it is offered to him to say whether he Avants 
it back. 

Mr. Edmonds. And if he don’t meet the price- 

Mr. Rush. If he don’t meet the price he gets the fellow avIio will. 
And let me say something right -noAv: That is bad for the American 
underwriters, but the American shipowner would be up a tree if 
that thing did not exist. In normal times, the profit on ship own- 
ing, I should say, was not, year in and year out, o\ T er 6 per cent. 
Now, you can see if that American shipoAvner was held up to a rate 
sa} T , higher than the English shipowner could get over there, he 
Avould haA T e a handicap. 

Mr. Edmonds. Oh, yes; I can understand that. I can understand 
probably a great many men are driven to just that conclusion. 

Mr. Rush. Sure. 

Mr. Edmonds. That they have to get their insurance at the cheap¬ 
est place; but what we want to see is why Ave can not make ours 
cheap OA^er here. 

Mr. Rush. Yes. That is a perfectly laudable intention. 

Mr. Edmonds. Now, I presume that also explains the difference 
betAveen cargo insurance and hull insurance—that hull insurance is 
generally taken out by the year? 

Mr. Rush. It is generally taken out by the year. 

Mr. Edmonds. And cargo insurance is taken out by the trip ? 

Mr. Rush. It is taken out upon a policy covering all the insured 
ships, and it is usually provided it can be canceled on 30 days’ notice. 
It may run for 1 year or it may run for 50 years. 

Mr. Edmonds. That is why it is easier to place hull insurance in 
the foreign insurance market than it is cargo insurance, where you 
want to keep closer in touch with the movement of the fleet ? 

Mr. Rush. Partly that, and partly because of the bigger volume 
and larger premium that obtains in the hull insurance. If you get a 
fleet of steamers, you may write them for a million dollars apiece, 
and you get a bigger volume of premium and you get a bigger activ¬ 
ity than you can get on a cargo policy, Avhich might only give you 
$500 a year. There is more competition for it. 



166 


MARINE INSURANCE. 


Mr. Edmonds. You think the reason the English underwriters are 
able to make a lower rate is on account of their overhead expenses 
being smaller? 

Mr. Rush. It is partly that; yes. 

Mr. Edmonds. What do you figure the overhead charges of an 
English company in Lloyds—the difference between an English com¬ 
pany and an American company? 

Mr. Rush. Between 3 and 4 per cent in normal times. 

Mr. Edmonds. Three and four per cent on what; on business or on 
premiums ? 

Mr. Rush. On the premiums. And, Mr. Chairman, before we leave 
that, I would like to say that is almost a complete profit, because the 
statistics of my company for nearly 40 years showed, including the 
interest on our investment, our profit on underwriting would average 
a little over 5 per cent a year. That is a pretty big slice of that profit. 

Mr. Chindblom. For the record, let us get what your company is. 

Mr. Rush. The Insurance Company of North America. 

Mr. Edmonds. Mr. Rush, I presume that answer of yours would 
cover the question I have here: What is the purpose of foreign under ¬ 
writers in singling out hull insurance for rate cutting? You say it 
is not rate cutting; that they are really simply using their own rates 
in placing the insurance over here. 

Mr. Rush. You understand, Mr. Chairman, I am testifying for 
the Englishman, and I am not responsible for his mental processes. 

Mr. Edmonds. No. 

Mr. Rush. But I do not think they deliberately go out and cut 
rates. I think they say “ an English ship can be insured for so much, 
and Ave will take the American ship at the same rate,” or maybe a 
little bit cheaper, perhaps; I am not sure. 

Mr. Edmonds. Now, I am going to ask you a question that has 
been put up to me by some banking interests. What do you know 
about this refusal to insure gold in this country for foreign export ? 

Mr. Rush. There is not any refusal. 

Mr. Edmonds. For foreign export during the war. 

Mr. Rush. I take it. 

Mr. Edmonds. You did not take gold shipments for South America 
during the war? 

Mr. Rush. No ; the rate was too low. 

Mr. Edmonds. Is it not true at that time the English underwriters 
were forbidden to write gold insurance for South America ? 

Mr. Rush. I do not know. We kept our statistics of absolute total 
loss costs and the gold rate was below that, so we did not take it. 

Mr. Edmonds. Did you have under consideration the taking of 
that gold shipped to South America? 

Mr. Rush. Yes. 

Mr. Chindblom. Do you mean your company or your association? 

Mr. Rush. My company. 

Mr. Edmonds. There is a statement here that was made to me. It 
may be true and it may not be true. It says when American bankers 
endeavored to finance the shipments of American merchants, the 
British Government forbade the English insurance companies to 
write any gold except to or from England. Do you know whether 
that is so or not? 


MARINE INSURANCE. 167 

Mr. Rush. I clo not, sir. I know they had restrictions on gold put 
on there during the war. 

Mr. Edmonds. The largest insurers of gold in this country (men¬ 
tioning some names) refused when this ruling came out and declined 
to write this gold for South America. 

Mr. Rush. They may have done so; I do not know. 

Mr. Edmonds. My information, then, is these people took the mat¬ 
ter to you and you declined. 

Mr. Rush. We offered a line on it, but we could not get together 
on the rate, so we did not take it. 

Mr. Chindblom. Was there much negotiation about the rate? 

Mr. Rush. I think they offered us, my recollection is, sir, 5 cents, 
and we wanted 10; somewhere around there. We have been out of 
the gold market for some time on account of the difference in the 
rate. 

Mr. Edmonds. Most of the gold is written by one or two com¬ 
panies in this country? 

Mr. Rush. Y es. 

Mr. Edmonds. It was outside business to you, because I know you 
had not done it—our information says that. 

Mr. Rush. Y es. 

Mr. Edmonds. But you rather decided you would like to help 
along and then very quickly decided, for some reason or other, that 
you would not take it, and I was wondering why that was. 

Mr. Rush. We could not get together on the price. 

Mr. Edmonds. What relation has the American Institute of Ma¬ 
rine Underwriters, the International Association of Marine Under¬ 
writers, the Association of Marine Underwriters of the United 
States, and the Board of Underwriters of Yew York to the Institute 
of London Underwriters? 

Mr. Rush. None, so far as I know. 

Mr. Edmonds. Are you a member of those associations? 

Mr. Rush. I am a member of the Institute, a member of the New 
York Board, a member of the American Association of Marine Un¬ 
derwriters of the United States, and—what was the other one? 

Mr. Edmonds. The International Association of Marine LTndcr- 
w riters. 

Mr. Rush. I do not know that one. 

Mr. Edmonds. There is one you are not in. Y r ou do not know of 
any relation between any of those and the Institute of London Un¬ 
derwriters ? 

Mr. Rush. No, sir; presumably, they are similar organizations in 
some shape or form. 

Mr. Edmonds. They have no rate-making communications between 
those associations, so far as you know? 

Mr. Rush. Oh, no; the Institute sometimes sends out rates to its 
companies here who happen to be members of the foreign institute. 
And where now and then I would get a rate sheet from our foreign 
settling agent over there as a matter of information as to what their 
rates were, I might add that they were always higher than what we 
could place the business at. 

Mr. Edmonds. You are a member of the American Committee of 
Lloyd’s Registry ? 

Mr. Rush. Yes, sir. 


168 


MARINE INSURANCE. 


Mr. Edmonds. You are still a member of that? 

Mr. Rush. Yes, sir. 

Mr. Edmonds. That association, I presume, was made to work for 
the advancement of Lloyd’s Registry in the United States? 

Mr. Rush. It is for the rating of ships built in the United States, 
whether for American or foreign ownership. 

Mr. Edmonds. And also for the advancement of Lloyd’s interests ( 

Mr. Rush. I would not say that; no. Lloyd’s Registry is not a 
thing that works for its own advancement at all. 

Mr. Edmonds. Of course, Lloyd’s insurance and Lloyd’s Registry 
are two different things? 

Mr. Rush. There is no profit at all. 

Mr. Edmonds. No; who are the other members of that commit¬ 
tee? 

Mr. Rush. I do not know. 

Mr. Edmonds. Haven’t you ever met? 

Mr. Rush. We met once in New York, I think. I think I attended 
one meeting over there. I can give that to you, Mr. Chairman. 
I think I have it on file in my office. 

Mr. Edmonds. Here are Appleton, Chubb, and Fowler? 

Mr. Rush. Yes. 

Mr. Edmonds. And Simpson and McGee, and there is Mather, and 
there is Rush? 

Mr. Rush. I guess that is right. 

Mr. Edmonds. I think that is the committee, isn’t it? 

Mr. Rush. I could not tell you, sir, without looking up my records. 

Mr. Chindblom. Just what does that committee do ? 

Mr. Rush. I only attended one or two meetings. We get the 
reports of their various surveyors as to the construction of these ves¬ 
sels—how they are progressing—whether they are being constructed 
in accordance with Lloyds rules and locating them and pass the 
reports through; and if they find anything wrong about it, they 
say so. 

Mr. Chindblom. Can you do all the work necessary in the way 
of locating vessels, and so forth, at so infrequent meetings as you 
refer to? 

Mr. Rush. It is a routine affair, sir. We have to depend on our 
surveyors. We are not surveyors ourselves. 

Mr. Chindblom. No; T understand. Then, you have an office force 
of some kind that attends to the routine ? 

Mr. Rush. Yes. It might be described, perhaps, as an American 
branch of Lloyds Registry. If anything goes wrong in America, 
why, they would report to us, and we would report to the head office. 

Mr. Chindblom. Your committee is merely sort of a directorate 
here ? 

Mr. Rush. Yes; we have limited powers, too. 

Mr. Edmonds. You are also on the managing board of the Ameri¬ 
can Bureau of Registry ? 

Mr. Rush. Yes, sir. 

Mr. Chindblom. Who is the executive officer ? What is the execu¬ 
tive authority on this side of Lloyd’s Registry ? 

Mr. Rush. I think it would be vested in the chief surveyor. He 
would be the man who would watch the work mostly. He is located 
in New York. 


MARINE INSURANCE. 


169 


Mr. Edmonds, I ou said you were also a member of the managing 
board of the American bureau ? 

Mr. Rush. Y es. 

Mr. Edmonds. Are you active on that? 

Mr. Rush. Much more active than I am in Lloyds. 

Mr. Edmonds. The positions work together? 

Mr. Rush. No ; we hope to put the American bureau where it ought 
to be before we get through with it. I have just been placed on the 
committee, similar to you gentlemen, to frame legislation to come 
before Congress. 

Mr. Edmonds. That is what we want to do. You were also con¬ 
nected with the Shipping Board on the classification society, were 
you not ? 

Mr. Rush. I did some work for them; yes. 

Mr. Edmonds. Some of the witnesses coming here had a meeting 
yesterday, did they not ? 

Mr. Rush. I do not know. I was not there. 

Mr. Edmonds. Were you not at the meeting? 

Mr. Rush. No. 

Mr. Edmonds. I thought they decided on a program to tell us, and 
it might save time by knowing the program. 

Mr. Rush. They did not say anything to me about it. 

Mr. Edmonds. When you were speaking first you spoke about the 
fluidity of marine insurance. We heard we were going to be told 
that our insurance would all have to be f. o. b. if it got too restricted, 
instead of being c. i. f.; and considering, however, that so much of 
the insurance goes out of the country, I do not see it makes any par¬ 
ticular difference whether it is c. i. f. or f. o. b. 

Mr. Rush. It makes a good deal of difference. 

Mr. Edmonds. Tell us why. 

Mr. Rush. If you sell insurance at cost, insurance, and freight, 
c. i. f., you get the insurance here, you see. That means the mer¬ 
chant here has his hand on the stick. But if you just sell it f. o. b., 
free on board, then your managing owner protects it until it comes 
to the ship’s tackles, and the importer on the other side attends to 
the insurance; or if it is imported into the United States, the re¬ 
verse occurs. What the American underwriters are trying to do is 
to get all the insurance on exports to the United States; and what 
the English underwriters are trying to do is to keep it all for them¬ 
selves, and there is a straight pull and haul between us on that 
point. I say the American shipowner and the hull owner, all things 
being equal, ought to patronize the American insurance company, 
because w r e are here and he can send a sheriff after us; whereas if 
he insures on the other side of the water, it is further for the sheriff 
to travel to get it and he may have to begin a foreign suit to get it. 
And I think that is coming to be more recognized in the United 
States than it used to be, because when I first came into the business 
the merchant did not care a snap where he had it. He is wiser now. 

Mr. Edmonds. Then it is to the advantage of the merchant here 
to have as many cargoes c. i. f. as he can ? 

Mr. Rush. To get as much of the insurance here as he can. 

Mr. Edmonds. It helps him to get the insurance here ? 

Mr. Rush. Yes. 


170 


MARINE INSURANCE. 


Mr. Edmonds. Now I want to go into this pool business a little 
bit, and, as I say, it is not with a spirit of criticism, it is more for 
information. 

Mr. Rush. We are here to lay our cards on the table. That is- 
what we came for. 

Mr. Edmonds. Take the sugar pool: The sugar pool, I presume, 
settles the rates? 

Mr. Rush. I am not a member of it, sir; so you had better get 
somebody else on that. 

Mr. Edmonds. How about the burlap pool; you are a member of 
that ? 

Mr. Rush. Yes; I am a member of the burlap pool. 

Mr. Edmonds. The burlap pool settles rates? 

Mr. Rush. It recommends them. 

Mr. Edmonds. When I say “ settle,” I do not mean, naturally, they 
have any legal status. You can not settle them. 

Mr. Rush. We recommend. 

Mr. Edmonds. The burlap pool is composed of a number of In¬ 
surance companies ? 

Mr. Rush. Yes. 

Mr. Edmonds. Is there any way for any other insurance company 
to get into the pool? 

Mr. Rush. Yes; to quote a lower rate, and they will get in in 
short order; or to get the business away from us one way or an¬ 
other. 

Mr. Edmonds. Has that been the result when an insurance com¬ 
pany quoted a lower rate? 

Mr. Rush. Very often. 

Mr. Edmonds. They were just allowed to come in? 

Mr. Rush. No; we tried to freeze them out. 

Mr. Edmonds. That is what I thought. 

Mr. Rush. But a big company that can speak loud enough and 
short enough might get the business away. The reasons of the 
establishment of the so-called pools—we call them marine insurance 
arrangements—are the large values of cargoes and the fact we can 
not get advice as to what our individual insurance is on any ship 
prior to her sailing. We can not rely on that. And we want to carry 
a line, say, of half a million dollars. She may have two million and 
a half worth of burlap on board that vessel, and if we did not have 
this reinsurance exchange between ourselves one individual company 
might find itself with $2,000,000 on its shoulders after the vessel had 
been to sea a couple of weeks, and it would have great difficulty in 
getting reinsurance, and of course might have a total loss before the 
information gets in to us, because it takes time to get the information 
in to us. So, these reinsurance arrangements were gotten together 
so that each company would take a certain share of it anyhow and 
the insurance risk be distributed. 

Mr. Edmonds. In other words, every company that writes a policy 
of insurance, you virtually reinsure? 

Mr. Rush. Yes; virtually reinsure. 

Mr. Edmonds. Under this reinsurance pool ? 

Mr. Rush. Under this reinsurance pool. 

Mr. Edmonds. Now, these pools seem to be rather peculiarly con¬ 
stituted. The burlap pool seems to be divided into 172 shares t 


MARINE INSURANCE. 


171 


Mr. Rush. Yes. 

Mr. Edmonds. And it seems that four companies, four interests, 
control the pool? 

Mr. Rush. How do you mean control ? 

Mr. Edmonds. They have 87 out of the 172 shares. 

Mr. Rush. That is true. That simply means they have the biggest 
share of it. 

Mr. Edmonds. They have the biggest share of it. And these four 
interests are very closely allied with the English insurance market. 

Mr. Rush. They probably have a large share, because they had a 
big share of the burlap business before this exchange was formed. 

Mr. Edmonds. And the interests, I suppose, were divided up when 
the thing was formed in accordance with the amount of insurance. 

Mr. Rush. The companies that needed reinsurance—which would 
be, of course, the ones having the business—would try to keep as 
much as they could hold themselves and give to those who did not 
have the business what they did not want. That is probably the way 
they got at it. 

Mr. Edmonds. Suppose I went into the insurance business? 

Mr. Rush. I wish you would, sir. 

Mr. Edmonds. Could I get in the burlap pool? 

Mr. Rush. Sure you could. 

Mr. Edmonds. How? 

Mr. Rush. We would elect you right away. 

Mr. Edmonds. Could I get a half a share or one share ? 

Mr. Rush. It depends on how much you handed in there. 

Mr. Edmonds. You mean in the way of business? 

Mr. Rush. In the way of business. You would be worth at least 
one share for your company; yes. 

Mr. Edmonds. I can realize very well why you are not in the sugar 
pool. 

Mr. Rush. I do not know why myself, except that it was not 
offered to me. 

Mr. Edmonds. No; it was not so much the fact that it was not 
offered to you as it was the fact that two or three people got most 
of it. 

Mr. Chindblom. Have these 172 shares any market value ? 

Mr. Rush. Oh, no; it is simply a division- 

Mr. Chindblom (interposing). It is simply a way of dividing up 
the business. 

Mr. Rush. Simply a division of the business, a division of the 
reinsurance. 

Mr. Edmonds. Do you belong to the coffee pool ? 

Mr. Rush. No. 

Mr. Edmonds. They are not treating you good in the burlap pool 
if they will not allow* you to get in the other ones. 

Mr.* Rush. I did not know there was a coffee pool. 

Mr. Edmonds. There is a coffee pool; there are quite a few of 
them. They are quite an interesting lot of pools. Some of these 
folks are very much more fortunate than you are, I will tell you 
that. 

Mr. Rush. I think this meeting, gentlemen, will be very valuable 
to the North American. 



172 


MARINE INSURANCE. 


Mr. Edmonds. I do not know that I should say very much about 
that because it might be a lack of Philadelphia business enterprise 
in not getting into all these things. 

Mr. Rush. I will be there before long. 

Mr. Edmonds. We have a cotton pool, and a burlap pool-- 

Mr. Rush (interposing). Do not call them pools; they are rein¬ 
surance divisions, not pools. 

Mr. Edmonds. Reinsurance agreements. There are quite a few 
of them, and quite interesting, too. 

Let us go to the builders’ risk, now. 

Mr. Rush. All right, sir. 

Mr. Edmonds. Don’t you think the builders’ risk, being a thing 
entirely in this country, ought to be written in this country? 

Mr. Rush. I certainly do, sir. 

Mr. Edmonds. Why is it we can not write it? 

Mr. Rush. Because I think some companies do not know 7 how 
profitable it is for one reason, and the second thing is the Navy 
Department-- 

Mr. Edmonds (interposing). Placed their insurance in foreign 
■companies, as we know. 

Mr. Rush. Placed their insurance in foreign companies. 

Mr. Edmonds. Through Mather and Johnson & Higgins. 

Mr. Rush. And as a result, some inquiries that came to me dis¬ 
closed that some of it went to China. 

Mr. Edmonds. The builder’s risk would be very much more like 
ordinary house insurance, it seems to me? 

Mr. Rush. That is right. 

Mr. Edmonds. And it seems to me that it belongs to this country. 
Was there any special rate made by those people to take the busi¬ 
ness, who were interested in putting you out of business here? Did 
they make any special rate to get the business? 

Mr. Rush. Who do you mean by “ they ” ? 

Mr. Edmonds. The foreign companies. 

Mr. Rush. Yes; or it would not be gotten. 

Mr. Edmonds. Did they give a bigger commission to the agents 
for getting it? 

Mr. Rush. I do not know about that. I know a lot of business we 
had left us vdien this new ruling of the Navy Department came out. 

Mr. Edmonds. What was that new ruling of the Navy Department? 

Mr. Rush. They placed it in another syndicate. 

Mr. Chindblom. What syndicate is that? 

Mr. Rush. I do not know; I was not a member of it. I know some 
of it went to China. 

Mr. Edmonds. When you speak of “ syndicate,” do you mean some¬ 
thing like- 

Mr. Rush. An association of companies; something like that. For 
instance, here is the way it works: Some broker will say, “ Here, I 
know So-and-so (the manager of the yard or the owner of the yard) 
who is building a fleet. I will see if I can not get the business*away 
from the companies that have it.” He goes to work and tries to get 
up a competitive market. There is no kick on that unless he suc¬ 
ceeds. In case he succeeds in getting that insurance on the ships 
building in that yard—it is open to everybody who lias it—then the 




MARINE INSURANCE. 


17a 


original companies who have it, they can either meet the rate or 
let it go. Sometimes they do not get a chance to meet the rate;, 
they do not know anything about it until it has already gone. 

Mr. Edmonds. Is there such a thing as an agency cutting its com¬ 
mission in marine insurance? I believe that is forbidden in fire and 
other insurance, but do agents cut commissions in marine insurance ?' 

Mr. Rush. I am not an insurance agent, Mr. Chairman, so I can 
not testify. I would doubt the agency of a company would cut 
commissions. 

Mr. Edmonds. The broker may? 

Mr. Rush. The broker may; I can not tell about him. They are 
very apt to contract- 

Mr. Edmonds. Does not the same law that prevents cutting com¬ 
missions in fire insurance affect a marine insurance broker? 

Mr. Rush. That I am not able to say. 

Mr. Chindblom. Those are statutes of the States, aren’t they,. 
Mr. Chairman? 

Mr. Edmonds. Yes. 

Mr. Rush. It is a pretty hard thing to prove, I think vou would 
find. 

Mr. Edmonds. I presume it would be. It may be an explanation 
of so much of this insurance business being exported. 

Mr. Rush. It may be. 

Mr. Edmonds. They may cut the commissions and then send the 
business over to the other side to be insured, in order to escape the 
law. 

Mr. Rush. Mr. Chairman, there are so many different ways of 
dividing commissions it would turn your hair gray. I know one 
man who got a policy by reason of renting an office in a building 
the other fellow owned. How are you going to put your finger on 
a thing like that? 

Mr. Edmonds. I have heard that Philadelphia brokers cut com¬ 
missions, but I do not think they have ever caught any of them. 

Mr. Rush. I do not think they ever will. I have tried for 20 
years, and I have not done it yet. 

Mr. Chindblom. Referring to this Navy transaction, was there 
a broker who represented the syndicate that got that business ? 

Mr. Rush. I am not a member of that syndicate and can not an¬ 
swer, but I imagine there would be. I can not testify under oath 
there was. 

Mr.' Edmonds. You never figured up or made any estimate of the 
amount of insurance exported? 

Mr. Rush. No, sir. 

Mr. Edmonds. You had no way of doing that? 

Mr. Rush. No. 

Mr. Edmonds. Some of these associations, I will tell you for your 
information, fix rates. 

Mr. Rush. Yes. 

Mr. Edmonds. We do not find any reason for objecting to that, as 
long as the rate is proper and right? 

Mr. Rush. Yes. 

Mr. Edmonds. Some of the smaller associations in New England 
advertise their rates; we have their rate cards. 

Mr. Rush. Yes. In the name of the association? 



174 


MARINE INSURANCE. 


Mr. Edmonds. Oh, yes. They make no bones about it at all. I 
think the name of the association was on the card, wasn’t it? 

Mr. Huebner. Yes. 

Mr. Edmonds. They make no bones about it. Frankly, I will say 
we feel it would be a great deal better to have published rates in the 
business and to have them established than it would be to have un¬ 
derstandings among a few people who can raise and lower the rates 
to the detriment of other people. 

Mr. Rush. You can not do it. You can not do it; how are you 
going to compete with a competitive market on the other side of the 
water who are not subject to your rate adjustment? 

Mr. Edmonds. Didn't you just say I could break into the business 
if I should make my rate low enough and was strong enough ? 

Mr. Rush. You could. We would follow your rates down until 
they got below cost, and then all of a sudden you would wake up 
over night and find yourself loaded up with a lot of unprofitable 
business. 

Mr. Edmonds. That is what would happen? 

Mr. Rush. That is what would happen. 

Mr. Edmonds. Then you would take me into your association, or 
w T ould you blackball me? 

Mr. Rush. No; you would not be blackballed. You would come 
over and say, “ I find I have a lot of losing business on my books,” 
and we would say, “ Is that so.” 

Mr. Edmonds. And then they would take it off my hands? 

Mr. Rush. They would take it off your hands, but not at your 
rates; and you would be a sadder but a wiser man next time. 

Mr. Edmonds. That would be the natural conclusion; that is what 
would happen. However, if I started in as a marine insurance 
broker, you would welcome me? 

Mr. Rush. We would. 

Mr. Edmonds. You would not try to blackball me? 

Mr. Rush. We would try to welcome you into our business. 

Mr. Edmonds. The rates I presume are arrived at according to the 
amount of business and competitive conditions? 

Mr. Rush. In connection, first and foremost, with the records of 
the business, the showing of the various companies by the records 
they all have to-day, as modified by competitive conditions. Of 
course nobody wastes any time about taking any business on which 
they have been losing; but, when there is a chance of getting a profit 
on the business, then we would get up an association if there was 
enough business for reinsurance. There are very few associations 
gotten up because usually one company can carry it all and we do 
not need it. 

Mr. Edmonds. You think England will get tired of this hull busi¬ 
ness after while? 

Mr. Rush. It goes to-ancl-fro across the water. Five or six years 
ago I was in the hull business, and if I thought it was profitable I 
would be in it now. 

Mr. Edmonds. You keep an eye on that all the time? 

Mr. Rush. Sure, we keep an eye on that all the time; and if I 
thought it was profitable, I would try to get it. 

Mr. Edmonds. The observance of these rates is also optional with 
the men, but most of them observe them? It is kind of a gentle¬ 
men’s agreement? 


MARINE INSURANCE. 


175 


Mr. Rush. I think they observe them. 

Mr. Edmonds. Is there any punishment for a member if he does 
not observe them? 

Mr. Rush. No. I think he would find it was pretty hard to get 
along if he was caught cheating. It is the same way with cards, 
you could not get into another game of cards if you were caught 
cheating, unless it was with another crowd. 

Mr. Edmonds. If they are caught cheating, you know what to do; 
is that it? 

Mr. Rush. AVe know what to do. 

All*. Chindblom. Have you had any cheating? 

Air. Rush. Not for a long time, sir. 

Air. Edmonds. Have ever to your knowledge a large substantial 
company, with a good-sized capital, made application to go into any 
of these associations? 

Air. Rush. Yes. 

Air. Edmonds. Do they take them in? 

Air. Rush. Sometimes. If they have reason for it, they do. 

Air. Edmonds. AVliat would be the reason, that you were afraid of 
the large capital? 

Air. Rush. No. The first thing would be whether they had any 
business to give. For instance, he might say, “ I will come into your 
burlap pool where I have no business, and give you some business in 
my coifee pool where you have no business ”; and there might be an 
exchange in that way. 

Air. Edmonds. Then, a man who would be able to show an advan ¬ 
tage could get into your association? 

All*. Rush. If there is any reason for letting him in. Why 
shouldn’t he? 

Air. Edmonds. Assume a lot of moneyed interests were to get to¬ 
gether and form a large company to do a marine insurance business, 
what would be their position in the business ? 

All*. Rush. As regards getting the business, they would have to 
build up from the bottom. If they started to cut rates in order to 
get in, the other companies who had the business would follow them 
down until it got below a cost basis; then they would let the other 
fellow have it. 

Air. Edmonds. What would be their position, assuming they did 
not cut the rates and still got business? 

All*. Rush. Then they would be welcome to all men. 

Air. Edmonds. You would give them so much if they went into the 
burlap pool, of the 172 shares? 

All*. Rush. They might be taken into these various associations as 
they found they needed them. We do business—I do not mean to say 
we do it in the best possible way, but we do it the best way we can, 
and we are perfectly willing for another company to come in. In 
fact, in recent years, many big fire insurance companies have come 
in: and they are welcome, so long as they do business as an under¬ 
writing business. 

All*. Edmonds. None of the companies that went into the business 
recently have gotton into the burlap pool ? 

Air. Rush. Not yet, no; but they have gotton into other business. 

All*. Edmonds. 1 presume generally; yes. 


176 


MARINE INSURANCE. 


Mr. Chindblom. Would a new company, under existing conditions* 
have much chance of getting, for instance, any of the burlap busi¬ 
ness ? 

Mr. Rush. Yes; it would. It would not get very much, but it 
would get some. They are mostly pretty big houses, you know. Bur¬ 
lap is a very valuable commodity. What they would do is this, they 
might go to somebody who knew—I do not think they would get a 
burlap account except by cutting rates, or by pull, so to speak, having 
some friend who knew the manager or owner. But if they came in at 
equal rates, they would not get it. 

Mr. Chindblom. Would they be able to get any portion of their 
risk reinsured with the members of your organization ? 

Mr. Rush. I will take any burlap at my rates from anybody that 
comes along; yes. 

Mr. Chindblom. Without reference to membership in what is 
called here the burlap pool? 

Mr. Rush. Surely. I would take from them in a minute. 

Mr. Chindblom. Would the rest of the members? 

Mr. Rush. I think they would. There is no reason why they 
shouldn’t, and I think they would. 

Mr. Edmonds. These are reinsurance arrangements, where a cer¬ 
tain proportion belongs to each member of the pool; and it does not 
make any difference which member gets it, it is divided up—they 
divide the burlap business up in accordance with their arrangement. 

Mr. Chindblom. I am talking of an outsider, outside of the pool, 
getting burlap business and offering to reinsure part of it. 

Mr. Rush. I told you in answer to that that I would be very glad 
to take it at my rates, and I think the others would. 

Mr. Edmonds. In other words, if he took it at the same rates you 
do, you would be willing to reinsure it? 

Mr. Rush. I would be willing to reinsure it; yes. It is not our ob¬ 
ject to freeze people out, their rates being right, because, there are 
only 20 or 30 companies that are in the pools among the hundreds of 
companies that exist in the world, and we would not be so foolish as to 
try to freeze people out. All we want to do is to protect our interests 
and not to have a big liability come on before we know anything 
about it. 

Mr. Chindblom. Is there any general reason why certain com¬ 
panies are in the burlap business, certain companies in the cotton 
business, and certain other companies in the sugar business? 

Mr. Rush. Simply as their writing has developed. 

Mr. Chindblom. How long has this been developing? 

Mr. Rush. You mean these various reinsurance exchanges? 

Mr. Chindblom. Yes. 

Mr. Rush. There have always been, so far as I recall, something 
of the kind on high-valued stuff, ever since I have been in the busi¬ 
ness, for 35 years. 

Mr. Edmonds. As I understand it, a policy of insurance on a ship 
is apt to be for a very large amount? 

Mr. Rush. Yes. 

Mr. Edmonds. And no one insurance company wants to take the 
entire risk? 

Mr. Rush. Not on the modern steel vessel; no. They would not 
want to do that. 


MARINE INSURANCE. 


177 


Mr. Edmonds. It has got to be reinsured? 

Mr. Kush. Or divided up among various companies. 

Mr. E dmonds. Or divided up among various companies. There¬ 
fore while your company might take a $2,000,000 policy on a boat, 
you would immediately decide in your mind how much of that you 
wanted to carry, $50,000 maybe, and the balance of the $2,000,000 
you would reinsure somewhere else? i 

Mr. Rush. If we had the whole line. i 

Mr. Edmonds. Yes; excepting in these pool arrangements, or rein¬ 
surance arrangements; because then you would divide in accordance 
with your pro rata shares. 

Mr. Rush. Yes. The usual way would be for the broker to give 
each company what it wanted to carry on the hull alone. He would 
not go out and give the whole policy to one company and have it 
reinsure; but if that thing occurred, what the company would do 
would be to go out and see how cheaply it could reinsure it and see 
if it was possible to get a little higher rate on its retained line. Sup¬ 
pose a ship was insured with us at 5 per cent, and we went out to 
reinsure and found some man willing to give us a rate of per cent 
instead of 5, we would take it of course. Most of it would be 5 per 
cent. 

Mr. Chindblom. Suppose you were offered some sugar insurance, 
would you write it yourself or would you turn it over to this sugar 
organization or the sugar pool, in the expectation that members of 
their organization would turn their burlap business over to you? 

Mr. Rush. As regards sugat, we would take it ourselves. 

Mr. Chindblom. Is there any commodity you would not take 
yourselves, but that you would handle in the way I have suggested? 

Mr. Rush. No. When a thing is offered to us, sir, it comes into the 
North American direct, just as if you insured your house with me. 
What we do with it outside of the reinsurance arrangement is no¬ 
body’s business except our own, provided we comply with the State 
laws. 

Mr. Chindblom. I am trying to find out what you do; I am try¬ 
ing to make it our business and to find out what you do. 

Mr. Rush. We would keep that. The business that comes in, not 
already arranged for, we keep all of it we consider it prudent to 
carry. If the line offered was more than we considered prudent to 
carry, we would reinsure wherever we got the best market. It might 
be with one of these companies and it might be with some other. 

Mr. Chindblom. If sugar were offered to you, or if cotton were 
offered to you- 

Mr. Rush. If cotton were offered to us for export, it would go into 
this cotton reinsurance exchange. The import cotton for the mills 
of New England is not in that exchange because the value of that 
cotton is not so great. 

Mr. Chindblom. But you yourself would turn it over to the cotton 
exchange ? 

Mr. Rush. On all foreign cotton. On sugar we would not, because 
we are not in that agreement, 

Mr. Edmonds. You only reinsure with the members of your asso¬ 
ciation where it is a commodity that is covered by your reinsurance 
a rrangement ? 


160770—20-12 




178 


MARINE INSURANCE. 


Mr. Rush. We carry out our part of that contract, and if we did 
not they could bring suit against us and make us. 

Mr. Edmonds. You are a member of the lumber association up on 
the Great Lakes? 

Mr. Rush. I believe so. 

Mr. Edmonds. There is a lumber association up there and you 
belong to that? 

Mr. Rush. We have had so many lumber associations, I would 
not like to answer that without looking it up. Let me look that up, 
Mr. Chairman. 

Mr. Edmonds. The lumber agreement on the Great Lakes—there 
seems to be an agreement up there that fixes the rates for the Great 
Lakes, and it has an effect on the lumber business in other directions. 
Will you look that up and let us know what you do about that? 

Mr. Rush. I will look that up, Mr. Chairman. I do not believe 
we do much on the Lakes. 

Mr. Edmonds. Then there is a joint grain arrangement on the 
Lakes ? 

Mr. Rush. Yes. 

Mr. Edmonds. You belong to that? 

Mr. Rush. Yes. 

Mr. Edmonds. What is its function? 

Mr. Rush. Just the same as the other lines, to reinsure and dis¬ 
tribute the risk. With wheat at $2.20 a bushel, it runs up into pretty 
big money. 

Mr. Edmonds. I notice they call this association the “ Joint grain 
certificate.” 

Mr. Rush. That would be a number of companies who issued one 
certificate. 

Mr. Edmonds. A combination certificate? 

Mr. Rush. John Smith, we will say, insures a million dollars’ 
worth of grain in some warehouse at Buffalo. Instead of having the 
certificate of the North American, the Fireman’s fund, the Aetna, and 
some other individual companies, three or four companies issue that 
certificate jointly. 

Mr. Edmonds. It is a partnership policy? 

Mr. Rush. It is a partnership arrangement; a partnership policy. 

Mr. Edmonds. Is the membership of that association limited? 
Any company can do that, can’t it? 

Mr. Rush. Yes; if it can get the business. 

Mr. Edmonds. Any three or four companies who did not belong 
to any association or anything like that, who could get the business, 
could go ahead and do that? 

Mr. Rush. They could, if they persuaded the insured that they 
could do that business, and we would fight them and try to prevent 
them getting in. 

Mr. Edmonds. And if you did fight them- 

Mr. Rush. The result of that would be a lower rate for the in¬ 
sured. 

Mr. Edmonds. If they took your rates, you would not fight them? 

Mr. Rush. No; if they took the pool rates, we would not bother 
them. 



MARINE INSURANCE. 179 

Mr. Edmonds. Are there any territorial divisions made between 
these associations? 

Mr. Rush. No, sir. Pardon me; I did not quite understand the 
question about territorial divisions. 

Mr. Edmonds. When we look over the list of the different asso¬ 
ciations in existence—the New Orleans River Association, the Lum¬ 
ber Agreement on the Great Lakes, the Provincial Underwriters’ 
Association, the Steam Schooner Agreement of the Pacific Coast, the 
Postal Insurance Underwriters’ Conference, Tourist-Baggage Insur¬ 
ance, Atlantic Inland Association, American Institute of Marine 
Underwriters, Board of Underwriters of New York—quite a num¬ 
ber of these seem to have a local name attached to them. Does that 
mean there is a territorial division? 

Mr. Rush. No; it means the company is engaged in doing busi¬ 
ness in that territory. I might be doing business up in Providence, 
or I might do business on the Mississippi; a company can belong 
to this association no matter where it is located. 

Mr. Edmonds. What do these associations do? 

Mr. Rush. They try to improve conditions for the companies 
writing business in those localities. 

Mr. Edmonds. They are just local business associations for those 
localities; they are not rate-recommending associations or anything 
like that? 

Mr. Rush. Not as a rule. I think the Mississippi River Associa¬ 
tion recommends rates. 

Mr. Edmonds. Most all business associations do recommend rates 
or what they think is a fair price to charge for the service. 

Mr. Rush. Yes. 

Mr. Edmonds. They have to do that in order to bring the mem¬ 
bers who have not the experience that the others have to time, so 
that they will know the reason why that price should be charged ? 

Mr. Rush. Yes. 

Mr. Edmonds. It would be natural that these associations would 
do that, I presume? 

Mr. Rush. Yes. 

Mr. Edmonds. But they are just general associations of insur¬ 
ance men? 

Mr. Rush. Yes. 

Mr. Edmonds. Who meet together? 

Mr. Rush. Who happen to be dealing with that particular kind 
of business, who may be doing it to-day but not to-morrow. 

Mr. Edmonds. They do not form themselves in a cotton agreement 
or anything like that, but it is just a general business association? 

Mr. Rush. Fluid. 

Mr. Edmonds. There is no division made as to territory ? 

Mr. Rush. No ; you can go into any territory where you think you 
can make money, and you can get out of any territory where you 
think you are going to lose money. 

Mr. Edmonds. Is there any agreement between various under¬ 
writers as to the different lines of insurance that they should go 
into? 

Mr. Rush. None that I know of. 


180 


MARINE INSURANCE. 


Mr. Edmonds. Has the excess profits or Federal insurance ta.* had 
any effect on the insurance rates? 

Mr. Rush. Well, you have to get rates to pay your taxes. Last 
year our taxes were 36 per cent of our capital, and we had to get 
rates to pay that. 

Mr. Edmonds. Thirty-six per cent of your capital or your earn¬ 
ings ? 

Mr. Rush. Our capital. Our State, municipal, and Federal taxes 
amounted to 36 per cent of our capital of $4,000,000. Now, as that 
has to come from the insured, it has affected the rates. 

Mr. Edmonds. Do they have a pretty high tax in England too ? 

Mr. Rush. They have now the excess profits tax, so I am told. I 
have not been there since the war was over. 

Mr. Edmonds. That has nothing to do with the difference in rates 
between England and here I imagine? 

Mr. Rush. If the tax of one country was noticeably different from 
another, I can not see how it would fail to affect the rates, either 
higher or lower. 

Mr. Edmonds. Suppose the excess profits tax were removed on 
marine insurance? 

Mr. Rush. I think the rates would ultimately tend downward. 

Mr. Edmonds. Wouldn’t they go down right away? 

Mr. Rush. I do not think they would go down for a time, but they 
would go down as there was competition. Of course it is human to 
try to make as much as you can; but if you found in the course of a 
week or two weeks or a month you were losing business to a com¬ 
petitor who was reducing his rates, you would have to reduce yours. 

Mr. Edmonds. Suppose we did not charge any excess profits tax 
on companies distinctly American and without any foreign affilia¬ 
tions? 

Mr. Rush. It would lower the rates, I think. Naturally the man 
who does not have to pay the tax can do the business at a lower rate 
than can the man who has to pay the excess profits tax. 

Mr. Chindblom. Would it be appreciably lower? 

Mr. Rush. I think so. Certainly it would be appreciable. 

Mr. Edmonds. You know what the taxes were in comparison with 
the premiums last year; you know how much of the premium it took, 
and don’t you think if we removed the excess profits tax on Ameri¬ 
can companies, that it would benefit our marine insurance business? 

Mr. Rush. Only it would be—I think probably you would run 
into treaty complications right away with the foreign nations. How¬ 
ever, that is not my business; that is up to you gentlemen. 

Mr. Edmonds. Yes; we are used to that. Just at the present time 
treaty complications are only a matter of detail with us. 

Tell us something about your Pennsylvania State tax. Do you 
pay a premium tax in Pennsylvania? 

Mr. Rush. We pay a capital tax, first and foremost, on our capi¬ 
tal; then we pay a tax on our premiums, our gross premiums, fire 
and marine. 

Mr. Edmonds. Is the premium tax in Pennsylvania any higher 
than any other State? 

Mr. Rush. I do not think so. Generally we have reciprocal laws. 
If a State charges a higher tax to a Pennsylvania corporation than 


MARINE INSURANCE. 181 

it does to its own, why then Pennsylvania charges a higher tax to 
the corporation of that other State. 

Mr. Edmonds. What is the corporation tax in Pennsylvania now? 

Mr. Rush. I think it is 4 mills, four-tenths of 1 per cent. I think 
it is something like 2 per cent; but I would like to refresh my 
memoty on that. 

Mr. Edmonds. And the premium tax? 

Mr. Rush. That is what I mean; the corporation tax- 

Mr. Edmonds. Is 4 per cent. 

Mr. Rush. I think it is 4 mills, four-tenths of 1 per cent. I think 
the premium tax is 2 or 2^. 

Mr. Edmonds. Is that pretty much the same as every other State? 

Mr. Rush. Pretty much. Then they also have a municipal tax 
in some States, which are lump sums, to keep up their fire depart¬ 
ments. 

Mr. Edmonds. That is not true of Pennsylvania? 

Mr. Rush. No. 

Mr. Chindblom. Does the marine insurance have to contribute to 
that ? 

Mr. Rush. I think it does as a rule. I know we have to pay a 
tax on the same bale of cotton in both Texas and in Massachusetts. 
Texas says “ I am going to tax you on that cotton,” and Massachu¬ 
setts says “I am going to tax you on that cotton too.” We have 
to keep an account and pay a tax to both of them, and it does not 
seem right to me. 

Mr. Chindblom. That is the fire fund tax for the fireman’s fund? 

Mr. Rush. It is for some State tax. I know we tried to get it 
adjusted and to get one State or the other to collect it, but they 
would not give it up. 

Mr. Edmonds. What is the reason for the premium tax ? 

Mr. Rush. They need the money. 

Mr. Edmonds. Is it presumed to be used to carry on the State 
insurance department ? 

Mr. Rush. Yes, sir. It is also a great deal more than is necessary 
for that, and it is used for other State purposes, almost universally. 

Mr. Chindblom. It is a little velvet? 

Mr. Rush. It is a little velvet on the side, a good deal of velvet. 

Mr. Edmonds. Do you know whether the brokers have any agree¬ 
ments among themselves with regard to business? 

Mr. Rush. I can not testify about that, sir; I do not know what 
they do. They might and they might not. 

Mr. Edmonds. That one man will take up one line and another an¬ 
other. 

Mr. Rush. I think any broker will take up most any line he can 
make money on, and that he does not hesitate to take anything he 
can get. 

Mr. Edmonds. Do you know of any brokers who have understand¬ 
ings with underwriters in foreign countries to export this business? 

Mr. Rush. The big ones have correspondents over there; the big 
brokerage houses have foreign correspondents of course; otherwise 
they could not place the business. 

Mr. Edmonds. Does that business escape the tax here, the exported 
business ? 


182 


MARINE INSURANCE. 


Mr. Rush. Let me see how to answer that now. 

Mr. Edmonds. You understand what I mean by export business? 

Mr. Rush. Yes. I think if it is placed—now I am not referring 
to the recent revenue act that imposed a penalty of 3 per cent on 
that exported business. I believe that is being paid on imports 
too. It was ruled by the Department of Justice that it could not be 
collected on the exports, because that was a tax on American ex¬ 
ports. That, I think, is being paid. Prior to that the business was 
placed in a foreign country, and a tax was not paid in the United 
States or in the States they are in; they only paid the tax to the 
foreign Government. 

Mr. Edmunds. They all did have a tax to pay on that side? 

Mr. Rush. They paid their own foreign Government’s tax, yes. 
When I say “they,” I mean the companies that took it; not the 
broker. 

Mr. Edmonds. When you reinsure in a foreign company, do you 
pay a tax here on that policy originally and then do they pay a tax 
on the reinsurance in the other country too ? 

Mr. Rush. If it is a company that is admitted to do business here, 
a foreign company admitted to do business, we get credit for the 
reinsurance we place with them. If it is a nonadmitted company, 
it is just as though we did not effect reinsurance; we pay the tax 
on the full amount. 

Mr. Edmonds. You get taxed on the full amount? 

Mr. Rush. Just as though we had not reinsured. 

Mr. Edmonds. The admitted company pays the tax here of course? 

Mr. Rush. Of course. 

Mr. Edmonds. If it is only a branch of a London company, then it 
pays a tax on the London company also ? 

Mr. Rush. It pays the English tax on the English receipts. 

Mr. Edmonds. Not on American receipts? 

Mr. Rush. I am unable to say what the recent legislation would 
be, but I believe the whole thing came in excess profits, no matter 
from what source it came. You understand this English testimony 
I am giving you, gentlemen, is being given on the best of my knowl¬ 
edge, information, and belief. I do not know what all the laws over 
there are. 

Mr. Edmonds. Oh, yes. We do not expect you to know everything 
about insurance companies, although we believe you know a great 
deal. We hope you know more about the United States end of it, 
and we hope you do not know anything about the English end of it. 

Mr. Rush. I do not know as much as some of them do. 

Mr. Chindblom. In the beginning of your testimony you said the 
foreign correspondent, in London, to whom application was made for 
a rate, would lmow at once the marine-insurance situation in France, 
Spain, and other European countries. Is the foreign correspondent 
in London in better possession of those facts, or is he better able to be 
in possession of those facts, than a man in the business in this coun¬ 
try ? 

Mr. Rush. The marine-insurance market of the world centers in 
London. They have correspondents all over the world. I should 
therefore say that at present they had better sources of information 
as to the marine-insurance markets of the world than we have here. 


MARINE INSURANCE. 


183 


In other words, we have to ask them for information. But if we 
ask them for information, they will give it to us, and they would 
have it and we would have to ask them in order to get it, because 
they have done a large foreign trade in their own ships and the 
United States has not. 

Mr. Chindblom. Have any of the American companies, so far 
as you know, direct sources of information in France, Spain, and 
the main countries of Europe? 

Mr. Rush. Only as regards losses. We have settling agents over 
there and we could ask them about loss settlements. We have no 
foreign correspondents in France or Spain. 

Mr. Chindblom. You could not get such information as to rates 
very readily? 

Mr. Rush. We would apply to London for it. 

Mr. Chindblom. Can you tell us when you resigned from the 
American Hull Association? 

Mr. Rush. I think it was a couple of years ago, or a year ago; 
somewhere around there. It has been some little time. I tried to 
resign for several years, and they said “ please stay in.” 

Mr. Chindblom. I do not understand whether it was a matter of 
years, months, or weeks? 

Mr. Rush. I think it was years; at least a year. I should say. 

Mr. Edmonds. There has been some information sent to us here, 
and I want to ask you about it, Mr. Rush. Do you know of any such 
thing as a discrimination in the rates of insurance on the same class 
of insurance, on the same cargo, between the same ports, and on the 
same steamer, and under the same policy conditions? 

Mr. Rush. Surely. As regards the merchant, that factor comes in. 
I am very glad you asked that question, Mr. Chairman. AVe make 
rates to insure a man. He gets rates on his own ability. I might 
have 10 merchants importing the same class of goods, let us say from 
Great Britain to New York and they would get 10 different rates, 
each based on their own handling of the goods. That is, the fellow 
who is a good merchant and reduces his losses, makes good salvages, 
can get a better rate than the careless and negligent. And it is right 
it should be so. You stand wholly on your own bottom in marine 
insurance. 

Mr. Edmonds. Now if you make a rate like that to the careful 
merchant and the man who is careless having a higher rate knows 
you made a better rate to the other merchant, Avould he not go to 
some other insurance company to place his insurance ? 

Mr. Rush. He would. 

Mr. Edmonds. Could he place it? 

Mr. Rush. Yes. But if they were a well-managed insurance com¬ 
pany, as soon as they found it out they would begin to raise his rate. 
I can illustrate it this way: I had a policy covering woolens of a 
Philadelphia merchant, AVilliam Steele & Son, I think it was, some 
importers, and they imported cloth from the other side. They had a 
lot of damaged cloth come in, on which they said their claim was, I 
think, twelve or thirteen hundred dollars. AVe paid them for it. 
After six months they came back and returned all that money to me 
except $160, because they said they had been able to refinish that cloth 
and sell it with only that net loss. Now the fellow who does that, 


184 


MARINE INSURANCE. 


you understand, is a better risk than the fellow who just says that 
cloth is injured and sends it to sale at auction. 

Mr. Edmonds. The personal equation enters into the making of 
rates for marine insurance? 

Mr. Rush. Very materially. 

Mr. Chindblom. Does that apply to hull insurance as well? 

Mr. Rush. That is a fallacy that has run through practically 
every bit of insurance legislation I have seen in the United States. 
There seems to be an obsession on the part of people when you in¬ 
sure a risk, insure a house or a ship or anything of that kind, that 
things that have exactly the same physical hazard ought to have the 
same rate. You do not do anything of the kind. You insure a man 
against loss to that property, and while you take into consideration 
the construction of that property and its maintenance, it is the hu¬ 
man faculty, that is a very vital part of that rate making, and it 
should be so. 

Mr. Chindblom. Is there any locality in this country where that 
principle is applied to fire insurance? 

Mr. Rush. I do not think so, but I think it ought to be. 

Mr. Chindblom. I know, proverbially, some people have difficulty 
in getting fire insurance? 

Mr. Rush. Yes. 

Mr. Chindblom. But that only relates to the difficulty in getting 
it, and no different rates apply so far as I know. 

Mr. Rush. No. There ought to be, and I know they are applied 
in marine insurance. 

Mr. Edmonds. Fire insurance is virtually under supervision, and 
the rate for fire insurance on a piece of property is practically set¬ 
tled for all companies. 

Mr. Rush. It is subject to supervision of the State authorities. 

Mr. Edmonds. Yes. But marine insurance has been free as the air. 

Mr. Rush. Marine insurance has been free as the air, and I hope 
it will always continue so. It is much better for the insured. 

Mr. Edmonds. And it is liquid? 

Mr. Rush. It is liquid. 

Mr. Edmonds. It goes on water and stays on water? 

Mr. Rush. Yes. To give an illustration, some }^ears ago the legis¬ 
lature in Texas passed a law bringing marine insurance under the fire¬ 
rating bureau. We got hold of the commissioner and said, “Look 
here, you gentlemen in Texas are going to lose all your marine 
premiums, because long before we can get up to your board and can 
get a quotation oh any individual risk, along comes the fellow in 
London, or Japan (we have a lot of companies in Japan), and they 
have that thing buttoned up in their inside pocket, and you will 
have to whistle for it. We have to give an answer, yes or no, and we 
do not have the time to come to your board to approve the rate.” 

Mr. Edmonds. I do not think any of us have any idea like that. 
We realize the business has to be liquid. As a matter of fact, we 
went before the Committee on Interstate and Foreign Commerce the 
other day. They proposed to put coastwise and, rather indefinitely, 
the foreign trade, under the Interstate Commerce Commission, which 
is regulatory, of course. 

Mr. Rush. Yes. 


MARINE INSURANCE. 185 

Mr. Edmonds. And one of the arguments was that shipping must 
be liquid. So I presume shipping insurance must be liquid. 

Mr. Rush. It has to be. 

Mr. Edmonds. Do you know of any case where brokers were al¬ 
lowed excess commissions to induce them to divert desirable business 
from one company to another? 

Mr. Rush. I have my suspicions. 

Mr. Edmonds. There is nothing to prevent that. 

Mr. Rush. You can make any commission you want. 

Mr. Edmonds. There is nothing to prevent that in the law? 

Mr. Rush. No ; not that I know of. Out of the 5 per cent there is 
not very much margin, as you can see. 

Mr. Edmonds. No; but maybe that is the reason you have a 5 per 
cent profit, and that is the reason we are going to try to help you 
raise that. 

Mr. Rush. Five per cent profit is a good profit and I am not kick¬ 
ing. 

Mr. Edmonds. You are satisfied with five? 

Mr. Rush. If 1 can make a 5 per cent profit, year in and year 
out, I will think I have done will. 

Mr. Edmonds. I presume in insuring the boats of the Standard 
Oil Co. that personal equation enters into it very greatly, does it 
not? 

Mr. Rush. I should think so. We did not insure the Standard 
Oil boats for a great many years. 

Mr. Edmonds. I understand they could get a very much better 
rate ? 

Mr. Rush. This is my own personal view; some of my colleagues 
would disagree with me, but I have always felt those big American 
trusts were mighty poor subjects for insurance. 

Mr. Edmonds. Subjects for what? 

Mr. Rush. Subjects for insurance; because they are so big and 
strong they do not need it. What difference does it make to the 
Standard Oil if it should lose a vessel or a cargo? They are bigger 
than all the insurance companies that try to protect against these 
losses. 

Mr. Edmonds. It seems to me it would pay them to carry their 
own insurance? 

Mr. Rush. I think they took that view of it for a number of 
years, and only took out insurance when they found they could 
make money on it. 

Mr. Edmonds. It is stated here as evidence of London’s determi¬ 
nation to prevent the development of the American insurance mar¬ 
ket that they have increased the rate on the English hulls three times 
in the last two years without making any increase in the insurance 
rates on American hulls. What do you know about that? 

Mr. Rush. I am unable to testif}^ as to what has been done in 
England. 

Mr. Edmonds. You never heard that? 

Mr. Rush. No. 

Mr. Chindblom. You do know that they have made no substan¬ 
tial changes in rates on American hulls during that time? 


186 


MARINE INSURANCE. 


Mr. Rush. I do not believe they have made any substantial 
changes, sir. 

Mr. Edmonds. And we have information that they have made ad¬ 
vances on English hulls. 

Mr. Rush. That may be so. 

Mr. Edmonds. And this says that from the experience of these 
underwriters it can be further brought out that the rate is so low 
on the American hulls that the business is actually run at a loss. 

Mr. Rush. Very likely. 

Mr. Edmonds. That their profitable lines of business for other 
countries counterbalance their losses on American hulls, but that 
American companies as a rule have no outside insurance to counter¬ 
balance those losses? 

Mr. Rush. I think that is probably so. 

Mr. Edmonds. And yet at the same time yOu think if the hull 
insurance business was profitable, we have enough insurance com¬ 
panies in this country to take care of it ? 

Mr. Rush. Plenty, providing the rates were right. 

Mr. Edmonds. Then it speaks here of rebates, of the brokers 
making rebates. Does the law prevent that? Understand, I do not 
mean surreptitiously; I mean openly they can not make them? 

Mr. Rush. They are not supposed to do so, I believe. Of course 
the laws of the various States vary. 

Mr. Edmonds. Still the law of Pennsylvania prevents a broker 
making a rebate? 

Mr. Rush. Yes, sir; I think so. 

Mr. Edmonds. And New York, too? 

Mr. Rush. I think so. 

Mr. Edmonds. Does that cover only fire insurance brokers, or does 
it cover everybody? 

Mr. Rush. It is supposed to cover everybody. But as I say, I do 
not see how you are going to find it out. 

Mr. Edmunds. I appreciate that. Then, this man says that rebates 
are bad. You agree with him, don’t you ? 

Mr. Rush. I agree with him; yes. What brokers sometimes do is 
to contract to insure a fleet or property for so much money, and then 
they go out and try to get rates at that that will bring them out a 
little more than square. Sometimes they do and sometimes they get 
stuck, and it comes out of their own pockets. 

Mr. Chindblom. It is hardly a brokerage business then, is it? 

Mr. Rush. I think it is extremely legitimate, sir. And they do do 
that, and sometimes they run up against it. 

Mr. Chindblom. Do you write building insurance? 

Mr. Rush. All we can get. 

Mr. Chindblom. I presume you do, but is the volume of it con¬ 
siderable? 

Mr. Rush. I think the statement shows per cent of our volume 
of business. 

Mr. Chindblom. Most of that goes abroad, doesn’t it? 

Mr. Rush. A good deal of it goes abroad. 

Mr. Chindblom. Are the rates unprofitable? 

Mr. Rush. No; they are profitable; as far as our statistics show 
they are. 


MARINE INSURANCE. 


187 


Mr. Edmonds. What reason can you advance for the business going 
abroad when the rates are profitable here? 

Mr. Rush. The American underwriters don’t know it. This is 
confidential, you know. 

Mr. Chindblom. Is it a fact that the foreign insurance companies 
at one time had a monopoly in that field ? 

Mr. Rush. I think they had more at the beginning than they 
have now. The rates look pretty low sir—a quarter per cent. It looks 
pretty low to a good many companies, but statistics show it is a 
pretty good business. You take a pretty big line on one risk. You 
may have 20 of them in a row, and it all runs up. 

Mr. Chindblom. I judge it is pretty much like other building 
risks; it isn’t any more than house building. 

Mr. Rush. I am referring principally to steel. Depends a good 
deal on the experience of the yard. For instance, a fellow in the 
New York Ships, Cramps, we would insure them very much quicker 
than we would some of these new yards. 

Mr. Chindblom. There are, of course, other elements of hazard 
that don’t occur on others? 

Mr. Rush. It usually covers launching. A breakdown costs a good 
deal of money. 

Mr. Chindblom. Do you maintain superintendents of construc¬ 
tion ? 

Mr. Rush. We do not. 

Mr. Edmonds. We are very much obliged to you, Mr. Rush. It 
has been a pleasure to hear your story. Your people have been greatly 
alarmed about our meetings here, but I don’t think you will find us 
as bad as we are reputed to have been. 

AFTER RECESS. 

The subcommittee reassembled at 1.30 p. m. 

Present: Representatives Edmonds (acting chairman), and 
Chindblom. 

Mr. Edmonds. Mr. Rush, did you want to add anything to your 
statement ? 

Mr. Rush. No, sir. 

Mr. Edmonds. All right. Mr. McGee, will you take the stand? 

TESTIMONY OF MR. WILLIAM H. McGEE. 

(The witness was duly sworn by Mr. Edmonds.) 

Mr. Edmonds. Do you want to supplement your former statement 
in any w T ay? 

Mr. McGee. I think not; if you are going to ask me about the 
same line of questions that have been asked before, I think there is 
no preliminary statement necessary. I would like to make the mat¬ 
ter of so-called pools and things of that kind a little bit clearer, per¬ 
haps, than they are in the record now; but if you are going to ask 
the questions, they will come up in the regular order. 

Mr. Edmonds. Suppose you go ahead and explain a little. You 
have heard this morning about the pool arrangements. Suppose 
you just go ahead now and explain your idea of the pool arrange¬ 
ments. 


188 


MARINE INSURANCE. 


Mr. McGee. The principal pool that I would mention here—we 
do not like to use the word “ pool,” because it is not a pool. The 
arrangements that exist are reinsurance arrangements, and they 
arise out of the very large values which apply on single shipments 
and on single vessels, on the three or four commodities which do 
enter into reinsurance arrangements. The burlap arrangement has 
been mentioned several times. As I had a great deal to do with the 
early formation of that—the details of the formation—perhaps I 
can make the reason for that clear. 

At the time that the burlap reinsurance arrangement came along 
we were all of us being confronted with terrifically large valued 
shipments for individual shippers. For instance, one shipper that 
occurs to me in Boston—they would have shipments that would be 
valued at five and six hundred thousands dollars in a single steamer. 
That manifestly is way beyond the capacity of a single company. 
When those shipments would be made, frequently the insurance 
companies (because there are two or three of them) whose policies 
had been issued to cover that business, would not know of the name 
of the steamer until a considerable period of time had elapsed, and 
they were all hurriedly rushing around through the American mar¬ 
ket and through what other markets were open for the necessary re¬ 
insurance, and they were having to pay all sorts of fancy rates, be¬ 
cause they were going into markets that were already crowded. The 
markets were already crowded because other companies who were not 
participating in those particular policies found themselves in identi¬ 
cally the same position, or probably would find themselves so, de¬ 
pendent upon conditions that developed afterwards, and they would 
be afraid to take the lines for fear that their customers might ship 
on those steamers too large values. 

Of course, the capacity of a steamer is limited. Once we know 
what is on board, we can then deal with the question of reinsurance 
with known facts; but there is a long interim of time when every¬ 
thing is up in the air. Nobody knows whose cargo is on board. One 
shipper may have three or four hundred thousand dollars’ worth of 
burlaps, and another shipper, who might have insured by the same 
identical company or sets of companies, might have two or three 
hundred thousand dollars’ worth of goatskins or fur skins. It was 
that uncertainty for a period of time that largely led to the forma¬ 
tion of a reinsurance arrangement, the purpose of which was that 
we throw our lines into one common reinsurance arrangement, and 
what each one has is reinsured with all the others; so that when the 
final developments occur, if only two or three of the companies hap¬ 
pen to have the lines, the rest that may be insured in Europe or may 
be insured in Calcutta, those who have the business to place, have 
placed their surplus lines with other companies doing business in 
New York or doing business in the United States. Otherwise we 
should be driven to the expedient of cabling our reinsurance orders 
to Europe. 

The result of that burlap reinsurance arrangement was that it 
kept in the American market a large volume of business which might 
have gone, and would have gone to foreign markets, because the 
American companies, or the companies doing business in this market, 
the American market, would be afraid to take the reinsurance be- 


MARINE INSURANCE. 


189 


cause of a fear of having their own commitments to look out for. 
The net result is that business is kept here, which otherwise would 
have completely gone out of the country. 

Mr. Ciiindblom. Are the 172 shares that constitute the burlap ar¬ 
rangement distributed among American companies? 

Mr. McGee. It is distributed amongst companies transacting busi¬ 
ness in New York; American and admitted companies—foreign com¬ 
panies. When the reinsurance arrangement was originally formed it 
consisted of 100 shares, and the divisions were in per cent. As new 
companies came in, and as additional reinsurances were required, 
other companies were admitted, and instead of changing the per¬ 
centages, which would have meant a lot of recalculation, we simply 
changed the denominator. Instead of one company getting ten one- 
hundredths, that company got ten one-hundred-and-seventeenths, or 
whatever it may be. The denominator has been changed as ad¬ 
ditional companies have been taken in. 

Mr. Edmonds. Were these reinsurance arrangements in existence 
before the war ? 

Mr. McGee. Yes. 

Mr. Edmonds. For a long time? 

Mr. McGee. Yes; for some things. I have forgotten when the 
burlap reinsurance was formed. My impression is it was formed 
somewhere about 1914. 

Mr. Edmonds. How about sugar? 

Mr. McGee. There is no such thing. 

Mr. Edmonds. When was the cotton formed ? 

Mr. McGee. Cotton is about 10 or 11 years old. On the cotton 
reinsurance arrangement you have the fact of a terrific accumulation 
of cotton on shore, exposed to a single fire, and with the almost im¬ 
possibility of finding out whose particular cotton it is that is part 
of that congestion, because it may be one owner’s to-day, and there¬ 
fore insured by one insurance company, and another owner’s to¬ 
morrow, and therefore falling under some other policy. And, of 
course, on the cotton reinsurance there is the utmost difficulty in 
tracing. ’You can not tell sometimes until a year after a vessel has 
arrived at her destination as to just exactly what value any indi¬ 
vidual insurance company had on that steamer. 

Mr. Edmonds. I suppose these underwriting syndicates, or what¬ 
ever you call them, set the rate between themselves ? 

Mr. McGee. They set the rate at which they will reinsure one 
another; yes. 

Mr. Edmonds. But they set the open rate, too, for the customer ? 

Mr. McGee. Not necessarily; although it would naturally fol- 

Mr. Edmonds. Naturally all those companies would have the same 
rate, or they could not do business together ? 

Mr. McGee. Naturally. 

Mr. Edmonds. Therefore they had to, by some means or other, 
arrange the rate? 

Mr. McGee. Yes; to a very large extent; and yet I believe it is 
quite true that frequently one insurance company will have to pay 
more to its reinsurers than it has itself received. I know our own 
company has suffered under disabilities of that kind. 



190 


MARINE INSURANCE. 


Mr. Edmonds. But not with reinsurers that are in this agreement 
or arrangement? Naturally they would transfer with each other at 
the same rate ? 

Mr. McGee. No; they do not—not necessarily. Of course, where 
there is a legitimate condition existing, I think they would probably 
go a long way toward helping one another; but the reinsurance 
arrangements are reinsurance arrangements, and as such they fix the 
terms on which each company writes that business. 

Mr. Edmonds. These associations have officers? 

Mr. McGee. Yes. 

Mr. Edmonds. This reinsurance association on burlap—does it 
have a chairman? 

Mr. McGee. No; it has not. I think the burlap reinsurance ar¬ 
rangement is a very informal one. 

Mr. Edmonds. How about the cotton; they have officers, do they 
not ? 

Mr. McGee. No; they do not have officers in the ordinary accepta¬ 
tion of that term. They have one or two committees, but, as a rule, 
the cotton business is handled by the entire membership. In other 
words, when there is anything to be discussed, everybody comes and 
we discuss it at the table. 

Mr. Edmonds. At a dinner? 

Mr. McGee. No ; not yet. 

Mr. Edmonds. You have not got to that point yet? 

Mr. McGee. Not yet. 

Mr. Edmonds. Let me ask you this: Was there any endeavor, in 
the prorating of shares in those reinsurance arrangements, to arrange 
so that a certain amount of that reinsurance would be done in foreign 
markets and a certain amount of it done in American markets? 

Mr. McGee. Not in that way, or not to that end. The arrange¬ 
ment of the shares was always based as closely and as accurately as 
it could be upon perhaps two factors: First, the amount of business 
which an individual company had on its books; next, the line-carry¬ 
ing capacity of the company. A company of small size and the 
ability to carry a small net line might have a particularly large 
account on its books and therefore would naturally and normally 
reinsure, say, 80 per cent of its account. That would be the effect 
of the reinsurance—that they had paid out 80 per cent of their in¬ 
come, although they might not have measured it by 80 per cent. 

Another company having precisely the same sized account, but 
being a larger company and perhaps better established, older estab¬ 
lished, might be willing to carry 20 per cent of that liability, and 
therefore they would reinsure something else. So those factors were 
taken together and an agreement made as to how much each one of 
the companies would reinsure of the business. 

Mr. Edmonds. Even after they did reinsure, if the risk was very 
large some of them probably reinsured it again? 

Mr. McGee. They probably declared it under excess treaties or 
something of that kind, but I should doubt that they would reinsure 
again. They might under some conceivable circumstances. 

Mr. Edmonds. Take, for instance, the cotton pool- 

Mr. McGee. I was thinking of the burlap pool. 

Mr. Edmonds. Well, take the burlap. Chubb writes 30 per cent 
in his companies ? 



MARINE INSURANCE. 


191 


Mr. McGee. Yes. 

Mr. Edmonds. All of those companies are big reinsurers in foreign 
companies. Would it not naturally follow that a certain proportion 
of this, after it had been written, would be written in foreign com¬ 
panies again? 

Mr. McGee. Yes; but- 

Mr. Edmonds. Take a big risk—say 30 per cent on a $3,000,000 
risk; that would be $900,000—Chubb would divide that between liis 
companies, probably? 

Mr. McGee. He would divide that. 

Mr. Edmonds. If it was too big for his companies, I presume they 
would reinsure. 

Mr. McGee. It would go out, in all probability, as what we call 
excess reinsurance. I expect every marine insurance company car¬ 
ries what are commonly known as excess reinsurance contracts. 
Every well-regulated marine insurance company sets down what 
liability it wants to assume on any given risk. We call them some¬ 
times our retained manifests, and the purpose of that is to have a 
level average of liability. Some companies, for instance, fix a 
schedule, dividing the various steamship lines into classes. We will 
say that on class A line steamers, or steamers which come in this 
class A, that company will measure its maximum line at, say, $50,- 
000; on a class B it may say $30,000; in class C, $20,000. Class D 
perhaps is tramps and general rough stuff; that they might carry 
only $10,000 on. Now, they carry what are called excess reinsurance 
contracts, which are obligatory contracts generally, and are generally 
arranged with foreign companies, because there is no market for 
them in these countries, because everybody in America would want 
the same thing. 

Now, if a company having such an excess contract has a sur¬ 
plus over the line it has fixed as its retention, it declares those excesses 
to its reinsurance treaty. So in some way of that kind, possibly, Mr. 
Chubb’s companies would pass on to foreign companies the surplus 
lines they would have over their retentions. 

Mr. Edmonds. I notice here, taking the cotton, the burlap, and 
the sugar pools, that there are four companies that seemed to have 
the lion’s share of those pools in each case; I will call them pools; 
they are not exactly pools; we understand that. 

Mr. McGee. It is a short word, and it is very easily used. 

Mr. Edmonds. Chubb & Son, the Federal Co., Appleton, United 
States Lloyds, the Fowler agency, and the Simpson agency with the 
American and Foreign. In the cotton pool those four concerns carry 
65/120; in the burlap pool they carry 87/172. In the sugar pool 
poor Fowler got left out; it seems unfortunate for him; and these 
three concerns that were left wrote 90/100 of it. That is the informa¬ 
tion I have; I think it is fairly good. The reason I make the remark 
about these companies is not that I am criticizing them, understand; 
I am only asking for information. 

Mr. McGee. Yes, sir. 

Mr. Edmonds. All of these companies appear to us, from the way 
we have looked at it, and the questions we have asked, and from 
the information we get from other places, to be very closely allied 
to foreign interests. 



192 


MARINE INSURANCE. 


Mr. McGee. So far as sugar is concerned, I do not think there 
there is any pool or reinsurance arrangement. I never heard of 
that. There is, however, this condition in the sugar business, or 
rather under the war conditions: When the United States Govern¬ 
ment formed the Sugar Purchase Cqmmission, I think it is, or the 
Sugar Import Commission—at any rate it was the body which 
regulated and handled the imports of sugar from Cuba, and which 
had the distribution of the shares, what share of sugar should be 
used in the United States and what would go to England and 
France—that body, differently from almost any other of the Gov¬ 
ernment commissions, continued the placing of marine insurance with 
private companies instead of forming a Government insurance 
fund and taking care of it there. They did continue the business 
with private insurance companies, and as I understand it, they picked 
out four of the leading companies; that is, those which had done the 
greatest amount of sugar- 

Mr. Edmonds. Mr. Hoover consulted Mr. Chubb, who was on the 
War Board at that time, and they arranged to take it in three or 
four concerns; is that right? 

Mr. McGee. I was not present there, but that is borne out, I 
think, by the results. The four companies were American com¬ 
panies—the American and Foreign, the Federal, the United States 
Lloyds, and the Atlantic Mutual. 

Mr. Edmonds. The Atlantic Mutual? 

Mr. McGee. Yes. 

Mr. Edmonds. Well, he did not get more than 10 per cent, I guess, 
because the others each got 30 per cent. 

Mr. McGee. I was under the impression, on the sugar, that it was 
divided into fourths between those four companies. Now, somebody 
in the Sugar Commission, I believe, suggested that those four com¬ 
panies should in turn divide into fourths with other American com¬ 
panies. 

Mr. Edmonds. It was understood by Mr. Hoover that this insur¬ 
ance was to be placed in American companies? 

Mr. McGee. In American companies; and in that way one of 
our companies got a share of it. That never was done in anything 
in the nature of a pool, as I understand it. 

Mr. Edmonds. It may not have been a pool; it was an understand¬ 
ing or agreement. 

Mr. McGee. We were invited in. They said, “ You can have this 
share,” and we were very thankful to get it. That was all of the 
sugar that was bought from Cuba. 

Mr. Edmonds. It was all placed, in accordance with Mr. Hoover’s 
request, with American companies? 

Mr. McGee. I do not know at whose request, but it was all placed 
with American companies. 

Mr. Chindblom. Was that done by the Requisition Board? 

Mr. McGee. I believe it was. 

Mr. Chindblom. Wall Street, New York? 

Mr. McGee. I believe it was. I never came directly in contact 
with them. 

Coming back to cotton and burlap, we are met with a condition 
which is a trade condition, and which I believe has a great deal of 
effect on the distribution of those businesses. The great cotton fac- 



MARINE INSURANCE. 


193 


tors of the world are the Liverpool cotton merchants, and the Liver¬ 
pool cotton merchants, of course, have a great deal to say as to where 
the insurance shall be placed upon the purchases of cotton which 
they make, or the cotton which is their property. Quite naturally, 
they say they want it in British companies; so that for that reason 
a large part of the cotton business of the country is placed with 
British insurance companies. 

Mr. Edmonds. Naturally the request of a customer would be- 

Mr. McGee. He is more than the customer; he is the owner of the 
cotton. 

Mr. Edmonds. But you folks all seem to forget that this country 
has become the great creditor nation of the world, and you still fear 
competition, financial competition, from England. To-day this is the 
dominant country in the world, and we are trying to put you in 
the position of being the dominant financial factor in the marine 
insurance world, and yet you are all still afraid of the English 
market. 

Mr. McGee. With us it is a condition, not a theory that con¬ 
fronts us. 

Mr. Edmonds. We want to break the condition; we want to re¬ 
verse it. 

Mr. McGee. And we are very thankful for that, and we are very 
anxious to cooperate with it, but I am just expressing now what was 
the situation when these organizations were formed. It was the 
same condition with the burlap business. 

Mr. Edmonds. That is what we are trying to do; we are trying 
to get to the point where we are going to be able to put you on top, 
in the proper position. We want you to realize that we are the 
foremost Nation in the world to-day, and we want you to come along. 

Mr. McGee. We are very happy to be in that position, and I think 
most of the American companies are putting up a pretty stiff fight 
to secure and maintain just that position. 

Mr. Edmonds. Let us return for a minute to your hull under¬ 
writers. You are now chairman of the Hull Underwriters’ Associa¬ 
tion, are you not? 

Mr. McGee. Yes, sir. 

Mr. Edmonds. When did Mr. Chubb, and Mr. Fowler, and the rest 
of them withdraw? 

Mr. McGee. They have not. 

Mr. Edmonds. Mr. Chubb was chairman? 

Mr. McGee. Mr. Chubb was deputy chairman. 

Mr. Edmonds. Who was chairman; Mr. Fowler? 

Mr. McGee. Mr. Fowler was chairman. 

Mr. Edmonds. And Mr. Chubb was deputy chairman? 

Mr. McGee. Mr. Chubb was deputy chairman, and Mr. Herbert Ap¬ 
pleton was deputy chairman. A year or so back, I think, Mr. Chubb 
expressed himself as feeling that he ought not to be an officer of an 
organization of that kind when he was connected with other Gov¬ 
ernment affiliations. In other words, he was having something to 
do with the hull insurance, and he felt that he was in an improper 
position. 

Mr. Edmonds. They they removed themselves and put you in as 
chairman ? 

160770—20-33 



194 


MARINE INSURANCE. 


Mr. McGee. No. Mr. Fowler was at the point, practically, of re¬ 
tiring, you know. He has retired from business, and it came just 
about at the time when we had decided that it was inadvisable to 
attempt to continue making advisory rates, and I became the keeper 
of the corpse. 

Mr. Edmonds. You are not making advisory rates now at all? 

Mr. McGee. No. 

Mr. Edmonds. I asked Mr. Kush a question this morning in con¬ 
nection with the hull rates. Is it true that the English have ad¬ 
vanced their own home rates twice or three times, and let our Ameri¬ 
can rates stand, so that they can gobble up the American business ? 

Mr. McGee. I think there is no question about it. We have seen 
the tariffs and seen repeated references to it—that they have ad¬ 
vanced their own rates on English-owned hulls and have not ad¬ 
vanced them on American hulls. I think there is no question 
about it. 

Mr. Chindblom. Let us see if we can get anything like the time 
when the change occurred in the American Hull Association. 

Mr. McGee. I think it was about May 1. 

Mr. Chindblom. Of this year? 

Mr. McGee. 1919. 

Mr. Chindblom. Is that the time when Mr. Fowler practically 
retired- 

Mr. McGee. Yes. 

Mr. Chindblom (continuing). And when Mr. Chubb was replaced 
by yourself? 

Mr. McGee. Oh, no; Mr. Chubb never was the chairman. Mr. 
Chubb retired as deputy chairman prehaps a year and a half or two 
years back. The association ceased making rates about May 1, it 
may have been June 1; but back in last October we discussed the 
advisability of ceasing to recommend rates. 

Mr. Chindblom. What was the reason for that discussion in 
October ? 

Mr. McGee. The reason for it was the competitive situation in 
foreign countries, the growing market here amongst outside com¬ 
panies, and very largely the fact that four or five underwriters were 
doing a tremendous lot of work. We were having meetings to¬ 
gether and we were having brokers come in to discuss their fleets 
with us, and we found the business was being placed elsewhere to a 
very large extent. The association was having the expense of sur¬ 
veying ships; we were getting the odium of making recommenda¬ 
tions—odium so far as the shipowner was concerned—and yet the 
brokers were going elsewhere with the business. We saw no par¬ 
ticular reason why we should be incurring expense and having 
trouble and getting nothing but trouble and expense for our pains. 

Mr. Chindblom. Have you any notion why the brokers were going 
elsewhere with the business-? 

Mr. McGee. Because they could get better rates and conditions. 

Mr. Chindblom. Were those foreign interests to which they went, 
where they got better rates and conditions ? 

Mr. McGee. Yes, sir. 

Mr. Chindblom. Largely foreign? 


MARINE INSURANCE. 


195 


Mr. McGee. Almost entirely foreign. Still there was a large out¬ 
side market in New York; companies that operate entirely as free¬ 
lances. 

Mr. Edmonds. The American companies worked as free-lances? 

Mr. McGee. Yes; two or three in New York. 

Mr. Edmonds. You have not cured them yet? 

Mr. McGee. No. 

Mr. Edmonds. Are they in process of being cured ? 

Mr. McGee. They are in process of being cured. It is pretty 
nearly akin to suicide. 

Mr. Edmonds. I can realize that if it was found necessary by the 
English insurance men to raise their rates on hulls, that everything 
else had gone up, and they did not raise the rate in this market, very 
naturally the companies that were writing hulls in this market, be¬ 
ing unable to raise their rates, were going to lose their business. Is 
that a correct statement of the case? 

Mr. McGee. That is a correct statement of the fact. 

Mr. Edmonds. So that is the reason why hull business is traveling 
to the other side; because the British insurance people are discrimi¬ 
nating against their own ships and charging their own ships with a 
higher rate ? 

Mr. McGee. Yes, sir. 

Mr. Edmonds. With the idea that they hope after a while to 
come back here and charge us a sufficiently high rate to make up 
for their losses during this time? 

Mr. McGee. They are charging not only their own ships, but the 
ships of other maritime nations. 

Mr. Edmonds. At a higher rate? 

Mr. McGee. At a higher rate. London is the great- 

Mr. Edmonds. You are beginning again. New York is the 
“ great.” 

Mr. McGee. I appreciate that, but you still must recognize that. 
London is the great underwriting center of the world, because the 
English mercantile fleet is tremendous. It always has been; and* 
of course, not only does the Englishman insure his hulls in London* 
but the Norwegian, the Spaniard, the Jap to a large extent, the 
Italian—they all go to London. Now, London gets such a large 
spread of hull business that the loss which they sustain on American 
hulls is lost sight of in the profits which they can make out of their 
own fleets and the fleets of other nations. Marine insurance is en¬ 
tirely one of volume and of spread. 

Mr. Edmonds. We realize that. 

Mr. McGee. And if you have a large enough volume, a losing 
business can be lost sight of for a considerable period of time. Amer¬ 
ican hull underwriters can not do it, because we do not have that 
big spread of hull business. If our hull business shows us a loss, 
it is a serious matter. 

Mr. Edmonds. I presume that should at any time conditions 
change so that you can write hull insurance, you would revive your 
American Hull Underwriters’ Association and go to work? 

Mr. McGee. The American Hull Underwriters’ Association has 
merely suspended making rates and recommendations for a period, 
I think, of six months or nine months, or something of that kind. 


196 


MARINE INSURANCE. 


We hope some day to come back together and see whether it is not 
possible to do something. 

Mr. Edmonds. Is that American Hull Underwriters’ Association 
dominated by English or American influences? 

Mr. McGee. I should say it was dominated by American influ¬ 
ences. Of course there are Englishmen who are members of it. I 
do not think it is dominated by the Englishmen by any means. 

Mr. Edmonds. I do not mean the nationality of the men in the 
association. We find in going through our records that some bro¬ 
kers even are so pro-English that they make unpatriotic remarks, 
although they are American citizens. We ran across a case of that 
kind in one insurance company in New York, and we do not con¬ 
sider those men as American—men whose interest in our American 
market is simply to make money out of it, whose feelings are Eng¬ 
lish, are not what we are hunting for. We are trying to make an 
American marine insurance market, and as long as it is dominated 
by English influences, certainly we can not make an American 
market. 

Mr. McGee. The insurance market of New York unquestionably 
is dominated by English influences. 

Mr. Edmonds. There is no question about it. 

Mr. McGee. I do not think there is any question about that; and 
it is dominated because the greatest number of companies with the 
greatest underwriting capacity are the great British companies. 

Mr. Edmonds. I think that is a good answer. That is true. 

Mr. McGee. That is a fact. You only have to look at the records 
to see it. 

Mr. Edmonds. And that is what we want to try to cure if it is pos¬ 
sible, if there is any way of holding this business in this country by 
expansion of our insurance facilities. You state in the first para¬ 
graph of your brief that you think our facilities are enough. They 
are not; they can not be. 

Mr. McGee. The facilities are enough—pretty nearly enough, any¬ 
way—for the general run of business. It is the exceptional business 
where they are not enough. The trouble with the situation is that 
the facilities are large enough but the facilities are not used. If my 
own office, for instance, were to get a larger share, a larger spread of 
certain classes of business, we would very quickly absorb two and 
three times as much as we absorb now of that particular class; hull 
business, for instance. My own office writes a very small line. We 
write a very small line because we do not get, under the existing con¬ 
ditions, the number of single risks and the amount of line on each 
one of those risks that would warrant our carrying a larger one. It 
is a question again of volume and spread. 

Mr. Edmonds. Do you get much of the fleet risks ? 

Mr. McGee. Very few of them. 

Mr. Edmonds. They again go to the other side? 

Mr. McGee. Yes. 

Mr. Edmonds. And when we come down to our Navy Department, 
that goes to the other side? 

Mr. McGee. Very largely, almost exclusively. 

Mr. Edmonds. How do you work on the builders’ risks ? 


MARINE INSURANCE. 


197 


Mr. McGee. We are not getting the builders’ risk to any large ex¬ 
tent, outside of the naval construction, because the Emergency Fleet 
Corporation’s insurance fund takes it over. 

Mr. Edmonds. Of course that is true, but that is your fault. If the 
Emergency Fleet Corporation had not done that, and had paid out 
the money for insurance, we would just have been sending that much 
more premium over to England, as far as I see it. I am not a be¬ 
liever in Government ownership, but you are putting us in the posi¬ 
tion of trying to keep this money in this country. There is no rea¬ 
son for being the creditor nation of the world and letting three or 
four hundred million dollars a year go out of the country in marine 
insurance premiums. 

Mr. McGee. It goes out of the country. It does not come to the 
American companies, because the brokers who handle the builders’ 
insurance business of this country seem to prefer the British market 
to the American. 

Mr. Edmonds. Such as Wilcox, Peck & Hughes, Mather & Co., 
Johnson & Higgins, and Frank B. Hall & Co. ? 

Mr. McGee. Yes. 

Mr. Edmonds. They seem to be strongly in love with their British 
cousins. 

What do you suppose the English brokers—of course it is done 
with the acquiescence of the English Board of Trade—expect to 
gain by discriminating against their ships and charging them a 
higher insurance? 

Mr. McGee. There is only one conclusion. 

Mr. Edmonds. What is that? 

Mr. McGee. That they hope to discourage American marine in¬ 
surance companies from writing American hulls. 

Mr. Edmonds. And also discourage the building up of the Ameri¬ 
can merchant marine? 

Mr. McGee. Well, yes; I think that is a fair inference to draw 
from that statement of facts. 

Mr. Edmonds. You made the statement of fact, and I made it • 
too, and that is that they were charging us less for our hull insur¬ 
ance than they agreed, and you know that is true; and therefore 
the only inference that can be drawn is that they are trying to 
undermine the American merchant marine. 

Mr. McGee. Not only that, but they will consent to values on 
American hulls which they will not consent to on their own, which 
is merely another way of reducing rates, because the total premium 
payable on a single ship is calculated upon a smaller sum insured. 

Mr. Chindblom. That would not benefit the owner in case of loss, 
would it? 

Mr. McGee. Yes; because they have a potent duplex system of 
placing total loss insurance which takes care of the owner. 

Mr. Chindblom. Would they pay a larger amount than the 
policy calls for, or would they replace the ship? 

Mr. McGee. They never replace the ship. No; they would not 
place more than the policy called for, but they would have another 
form of insurance and another policy of insurance which would only 
come into play in the event of a total loss. That is what I meant 
by the duplex system. 


198 


MARINE INSURANCE. 


Mr. Chindblom. Beating the devil around the bush? 

Mr. McGee. They effectuate a reduction in rates through plac¬ 
ing a smaller amount on full policy conditions and placing enough 
additional to protect the owner in the case of a total loss of a ship, 
that additional insurance being placed in what we call P. P. I. 
insurance, or policy proof of interest. 

Mr. Edmonds. Do you write those, too? 

Mr. McGee. To some extent; yes. 

Mr. Edmonds. Why don’t you write them more, if they are such 
a good policy to get business with? 

Mr. McGee. Why, we do not consider it a good policy to get 
business with. 

Mr. Edmonds. But you tell me that London is a wonderful center 
for marine insurance, and therefore they must know it all, and you 
can certainly afford to follow the leader. 

Mr. McGee. The man who knows it all does not always know it 
all. The man who knows most about the risk is the man that is 
closest to it. 

Mr. Edmonds. When you were in full swing in the Hull Associa¬ 
tion the rates you were making on hulls were entirely governed, and 
probably to a certain extent determined, by the rates in London, were 
they not? 

Mr. McGee. Partly; not entirely. The procedure in the case of the 
American Hull Underwriters’ Association would be this: A broker 
would send either to the association or to some officer of the associa¬ 
tion a statement of the insurance that he wanted to place. The fleet 
is coming around for expiration in the course of a month or two, and 
the broker wants to know at what rates the American underwriters 
will renew it. The underwriters would be called together and the 
broker would be invited in. We would generally ask the broker to 
give us a statement of what the premiums had been over a period of 
time and what the losses had been and what the conditions were; and 
the broker stated his side of the case, what he thought he ought to 
have and what he thought the fleet was entitled to and what its record 
entitled it to, and then we would try to come as close to that as we 
could. In a great many cases we met the broker’s needs. In a great 
many cases the broker would supplement such statement by the fur¬ 
ther statement that he had already renewed 25 per cent or 50 per 
cent of the fleet in London on last year’s terms or that he had gotten 
a reduction. We would take that into consideration. 

Mr. Edmonds. Did you take his word or confirm it? 

Mr. McGee. We took his word in some cases, but in others we 
found it advisable to find out. 

Mr. Edmonds. I was wondering whether you did not, because it 
looked like a fruitful place for playing two people against each other. 

Mr. McGee. It depended somewhat upon who made the statement 
as to whether we took it or whether we checked it up. In a great 
many cases the rate recommended would be the same as was recom¬ 
mended in London. In a good many cases—quite as many, I think— 
we said, “ No; the record does not entitle that ownership to any such 
rate, and we can not recommend any such figure as that.” So we 
would recommend something which was quite different from London, 
and sometimes we found that the London market could not absorb 


MARINE INSURANCE. 


199 


quite as much as the broker led us to believe and sometimes they could 
absorb a great deal more. 

Mr. Edmonds. Did your action in that way have any effect on the 
profit in the ship ? 

Mr. McGee. Not on the profit in the ship; no, sir; but on its result 
to the underwriters. If you had a fleet which had notoriously cost 
the underwriters year after year more than their premium income 
we would try to advance the rate up to a point where it at least would 
carry the losses on its record. 

Mr. Edmonds. Then in case he did not take your insurance he 
would go to London and get it? 

Mr. McGee. He would go to London. 

Mr. Edmonds. In other words, it had no effect on the real earnings 
of the vessel? 

Mr. McGee. Not at all, except in so far as the cost of the insurance 
would enter into it. 

Mr. Edmonds. Could you hold up the making of a rate in London 
on those people? 

Mr. McGee. I do not follow you. 

Mr. Edmonds. Would they ask you in London what rate you had 
made in the matter? 

Mr. McGee. Individual companies sometimes would, but I do not 
think in several years there has been anything in the nature of a con¬ 
ference of any official character. 

Mr. McGee. There have been no official communications between 
the London Underwriters’ Association and the American Hull Asso¬ 
ciation, or any other of the associations? 

Mr. McGee. Not for. I should judge, six or seven years. 

Mr. Edmonds. Nothing except social communications? 

Mr. McGee. No. What would be done, if we wanted to sound out 
the London market, would be this: Some one of the members of the 
American Hull Underwriters’ Association that represented a British 
company would cable to its head office and say, “ What are your 
views?” or “What do the London markets suggest?” or “What can 
you find out?” I do not mean the London markets suggest; I should 
say the London underwriter would suggest—of that individual com- 
pany. 

Mr. Edmonds. Would the brokers utilize this situation between the 
two countries to speculate every once in a while, in trying to beat 
rates down? 

Mr. McGee. Unquestionably. Unquestionably the brokers have 
gone to London a great many times, with a great many fleets, and 
offered them long in advance of the time when they offered them in 
the American market. I think that is very commonly done; and they 
would inform us that they had placed so much in London, and take 
it on these terms or leave it. 

Mr. Edmonds. When a rate is made (and somebody has to make 
rates, of course ; we recognize that) for a certain steamer between cer¬ 
tain ports, on a certain cargo, would there be any discrimination 
against another steamer of the same grade ? 

Mr. McGee. The question of moral hazard would bring about such 
a discrimination. Take two steamers of identical construction, per¬ 
haps built in the same yard in the same year. One managed by a 


200 


MARINE INSURANCE. 


very careful, competent owner would unquestionably get a lower rate 
of premium than a similar steamer that was in the hands of some¬ 
body who was less experienced and somebody with a less profitable 
record from the underwriter’s point of view. 

Mr. Edmonds. Does that follow with the officers and crew, too? 

Mr. McGee. I do not think we follow that quite so closely as that, 
but, of course, that would all come under the term of management. 
A well managed steamship line with a good record will always get 
a lower rate of premium than a badly managed line with a bad 
record. 

Mr. Edmonds. Is there a material difference between the rates? 

Mr. McGee. Yes; it is sometimes very sharp. 

Mr. Edmonds. I think that is probably good business, too, so long 
as there is no discrimination in it. 

Mr. McGee. There is no discrimination. It is done on the record, 
on results. 

Mr. Edmonds. And it is noted, I presume, by you, between your¬ 
selves, as being a poorly managed arrangement, or something like 
that ? 

Mr. McGee. Well, I think the losses which any one of us would 
sustain would very quuckly draw our attention to a badly managed 
line. 

Mr. Edmonds. Then do you have that badly managed line go to 
some fellow in London who is not conversant with the bad man¬ 
agement and let him take the risk? 

Mr. McGee. Yes. If somebody else is not aware of its being a 
badly managed line, and is willing to write it on the basis of a first- 
class line, we let him have it. 

Mr. Edmonds. Even if he is a good friend? 

Mr. McGee. Well, if he was a close pal, we might whisper in his 
ear that our experience was bad with that fleet. But the disagree¬ 
able feature of that is, you know, that when you give advice of that 
kind, sometimes the record changes during that year. So it is not 
a safe thing even to advise your best friends. 

Mr. Edmonds. He might come back and say you were trying to 
play a game on him? 

Mr. McGee. Exactly. 

Mr. Chindblom. Is there any exchange of views between the un¬ 
derwriters of marine insurance as to the character and record of 
risks ? 

Mr. McGee. No. 

Mr. Chindblom. Anything of a permanent, usual, or customary 
character ? 

Mr. McGee. No. 

Mr. Chindblom. It is every man for himself? 

Mr. McGee. Every man for himself. That is the unfortunate 
feature, and it is the one disability and perhaps the one vice of the 
marine insurance business—that we, each one of us, keep our own 
records and keep our own counsel and underwrite along our own 
individual lines. 

Mr. Chindblom. Were this burlap arrangement and this cotton 
arrangement intended to obviate or help that kind of a situation ? 

Mr. McGee. Those arrangements were intended as reinsurance 
facilities. Of course, both of them, through their interchange in 


MARINE INSURANCE. 201 

those things, have tended to stabilize the rates and conditions; they 
have tended to cut out abuses. 

Mr. Chindblom. And besides discussing and agreeing upon rates, 
you would have some exchange of views on these other subjects, in 
those organizations ? 

Mr. McGee. No. Perhaps I do not clearly understand your 
question. There is very little interchange of views with regard to 
individual accounts or individual shippers, or anything of that 
kind—very, very little. In fact, it is almost none. There we deal 
with the questions of hazards; questions of principles. 

Mr. Chindblom. How could you fix rates there without taking 
in the moral hazard ? 

Mr. McGee. On cotton or burlaps? 

Mr. Chindblom. Yes. 

Mr. McGee. Because the question of moral hazard does not come 
into play in quite the same way that it does in the hull; that is, it is 
not so easily identified. In cotton insurance the question of moral 
hazard does come in through the medium of w hat is termed country 
damage, and the remedy is applied there by making a return to that 
merchant whose country damage claims are nominal as compared 
with the merchant whose country damage claims are heavy. 

Mr. Chindblom. How* do you make that return? 

Mr. McGee. It is measured by the amount of the country damage 
claims that he has made; or rather put it in another way, that if the 
country damage claims on a policy do not exceed a certain per¬ 
centage of the premium income or the rate—the premium income as 
expressed bv a rate; I will make that clearer in a moment—then they 
return to him the difference between that rate and what his country 
damages have been. 

Mr. Chindblom. That is a kind of rebate? 

Mr. McGee. No; it is a return. It is a reward of merit. If the 
country damage claims on an account do not exceed, say, one- 
sixteenth of 1 per cent of the rate of premium—it is a little involved; 
it is difficult to express it clearly, but if you take the country damage 
claims and apply them to the amount insured, and if the factor then 
arrived at does not exceed one-sixteenth of 1 per cent, then the dif¬ 
ference between that one-sixteenth and the rate which has been 
charged to cover country damage—a special rate is added to the gen¬ 
eral rate for covering the country-damage hazard; if that rate is not 
used up or exceeded- 

Mr. Chindblom. Then you return it? 

Mr. McGee. Then w*e return it. 

Mr. Chindblom. If it is exceeded, do you make an additional 
charge ? 

Mr. McGee. No ; we do not. We take it as a loss. 

Mr. Chindblom. You rew T ard good conduct, but you do not punish 
bad conduct ? 

Mr. McGee. We punish him next year by charging him more for 
it, w*hen w*e can. But competitive conditions do not always permit it. 

Mr. Edmonds. Suppose I were an insurance broker, Mr. McGee, 
and I had a good personal friend that was in the burlap business; 
he was going to ship burlap somewhere or other, and he had a ship 


202 


MARINE INSURANCE. 


with $600,000 worth on it, and he was perfectly willing to pay me 
the regular rate. Where could I get that rate ? 

Mr. McGee. I should say you could get it with any insurance com¬ 
pany that transacted a burlap business. There are some companies 
that will not write burlaps. 

Mr. Edmonds. That is true; but how could I get a rate made? 

Mr. McGee. Go to any insurance company. Any insurance com¬ 
pany would quote you a rate. 

Mr. Edmonds. Even if they are not in this reinsurance? 

Mr. McGee. Certainly. 

Mr. Edmonds. Would the rates vary? 

Mr. McGee. That would depend entirely upon the individual com¬ 
pany. If you went to a company that was in the reinsurance agree¬ 
ment, the probability is that they would quote you the same rate that 
they have got to pay for the reinsurance. On the other hand, that 
company may not have much of any burlap business, and in order to 
establish a position for itself they may be willing to say, “Well, I 
will take your business for less than the other fellows are charging.*' 

Mr. Edmonds. That would be an unfortunate thing for them, would 
it not? 

Mr. McGee. No: not necessarily. They could equalize it. You get 
a good fine pencil and a nice pad of paper and you can work it out. 

Mr. Edmonds. Then a man in the brokerage business, handling a 
line like that, could go shopping around? 

Mr. McGee. There is nothing to stop him to-day from shopping in 
the burlap business from one company to another, and he would un¬ 
questionably find quite a number of companies that are quite outside 
of the burlap reinsurance. In my own office, only one of the com¬ 
panies is in the burlap reinsurance arrangement. That company is in 
it because it has burlap business in large volume and needs reinsur¬ 
ance, and none of the other companies in our office participate in any 
way. We are quite willing to take it. 

Mr. Chindblom. Those other companies will take burlap business? 

Mr. McGee. Certainly. 

Mr. Edmonds. How do these companies keep posted on what rate 
to ask on general merchandise and so on? If a man goes into the 
marine insurance business, where does he get his figures? Does he 
have to sit around and guess, or find it out by experience, or is there 
some other method? 

Mr. McGee. It is entirely a question of experience. There is noth¬ 
ing that you can turn to and determine it; nothing in the nature of a 
catalogue. If you do not know what is the correct rate for a risk, you 
have either got to take what the broker offers to you, or make a guess 
at it, or, as we all of us do to some extent sometimes, when we en¬ 
counter something new we will look wise and tell them to please call 
to-morrow, and we will try to find out in the meantime. 

Mr. Edmonds. Where do you find out? 

Mr. McGee. Well, you know there are tricks in all trades, and some¬ 
times if we meet a situation of that kind we will just make out a 
reinsurance application for some dummy risk, and go to our next-door 
neighbor or competitor and say, “What will you reinsure me for? ” 
The company that you have offered the reinsurance will perhaps give 
you the information you need. That is one way; but of course that 


MARINE INSURANCE. 203 

is infrequent. The ordinary way in which business is done, an under¬ 
writer must take it or leave it. 

The broker almost invariably puts down on his application the 
rate of premium at which he is offering that risk. The broker may 
put down the rate he knows other business is done at; or he may by 
some analogy conclude that because cotton pays one rate burlaps; 
ought to pay the same thing, if it were on the same voyage; and so 
he will put down that rate. It is the underwriter’s duty to know 
whether what the broker is offering him is the correct rate, and, if 
not, to make it correct. 

Mr. Edmonds. The underwriter is the representative of the in¬ 
surance company? 

Mr. McGee. The underwriter is the representative of the insurance 
company. 

Mr. Edmonds. Your firm is an underwriter? 

Mr. McGee. We are underwriters. We are not brokers at all. 

Mr. Edmonds. How do you educate an underwriter? How does 
a man get all this knowledge? Do you run an apprentice system in 
the business ? 

Mr. McGee. Every established office has two or three understudies 
to the underwriter. They generally divide up the work and dele¬ 
gate it, and let the understudy begin with the easy jobs, and he grows 
up; and it takes a long time to train him. 

Mr. Chindblom. Do you call the rate maker the underwriter, in 
your office ? 

Mr. McGee. Yes, sir. The underwriter is the man who commonly 
accepts the risk. The word “ underwriter ” arises out of the early 
condition or manner in which marine insurance was transacted. 
Back in the seventeenth century, when Edward Lloyd conducted his 
coffeehouse in London, he had a blackboard. A shipper of cargo 
or an owner of a ship who was about to perform a voyage would 
come in and write at the top of the blackboard what amount of 
insurance he wanted, the name of the ship, what lie wanted his 
insurance upon, and w T here the ship was going to. Those who fre¬ 
quented that coffeehouse came along and put down, underneath, 
how much they would take on that and at what rate; and in that 
way those men who put their names beneath the description of the 
risk became termed u underwriters.” That is the origin of the 
word. So, with that explanation, I think you can see what I mean 
when I say an underwriter. The man who tttkes the risk is commonly 
termed an underwriter. 

Mr. Chindblom. He does not necessarily fix the rate, then? 

Mr. McGee. He either takes what the broker offers, or else he 
fixes the rate at which our office would take it—at which the company 
for whom he is underwriting would take it. 

Mr. Chindblom. Of course, in your case the company is the real 
underwriter ? 

Mr. McGee. The company is the real underwriter. 

Mr. Chindblom. But I am trying to find out whether you have a 
name for the particular man in the company who fixes the rate— 
who finally accepts and determines the rate. 

Mr. McGee. He is called the underwriter. 

Mr. Edmonds. That is, the man in your office is the underwriter? 

Mr. McGee. The man in our office. 


204 


MARINE INSURANCE. 


Mr. Chindblom. You represent a number of companies: how 
many? 

Mr. McGee. Twelve. 

Mr. Chindblom. How many underwriters have you in your office ? 

Mr. McGee. We have about four; one chief underwriter and three 
or four deputies. 

Mr. Chindblom. The chief passes upon the work of the deputies ? 

Mr. McGee. Yes. 

Mr. Chindblom. He is the supreme head ? 

Mr. McGee. He is the chief underwriter. 

Mr. Chindblom. So that he fixes the rate for all your companies ? 

Mr. McGee. Yes. 

Mr. Edmonds. Of course he is supposed to keep posted on the state 
of the market ? 

Mr. McGee. To keep posted on the state of the market. 

Mr. Edmonds. And also to keep in touch with the insurance com¬ 
panies that eventually take the risk ? 

Mr. McGee. Yes. 

Mr. Edmonds. And these insurance companies no doubt collabo¬ 
rate together in order to have some sort of basis for an established 
rate? 

Mr. McGee. There is very little of that; virtually none. That is 
the unfortunate feature of the marine insurance business to-day. 
There is no conference between the companies on the very important 
lines of business. 

Mr. Edmonds. Is that true of England and America both ? 

Mr. McGee. There is more conference in England than there is 
liere. There is virtually none here, and that is the reason why you 
can place a 1 per cent risk to-day in New York for 15 cents. There 
is no conference; there is nobody to guide you, and in the very con¬ 
dition of affairs the new underwriters to-day would resent any sug¬ 
gestion from the more experienced ones. Their answer would be, 
‘•That is all right; you want me to name a rate on the risk which 
will keep it in your office. I am going to name my own rate.” 

Mr. Edmonds. I understood Mr. Rush this morning to say that 
there was some arrangement or understanding between the offices— 
not a positive understanding, but a kind of general talk, perhaps, 
between each other—so as to establish some kind of a basis for in¬ 
surance, anyway. 

Mr. McGee. There might be on one or two directions, such as 
cotton or burlaps, but outside of that there are none—excepting this, 
that there are quite a number of us that are quite friendly, quite 
intimate; we frequently meet together at luncheon and might in a 
casual way- 

Mr. Edmonds. I knew there was a luncheon coming somewhere. 
Now I have got it. 

Mr. McGee. Each man pays for his own. There are no such 
luncheons. There are two or three clubs down town where all of 
us go more or less. These are very innocuous. We might, in a casual 
way, and in an absolutely casual way, mention that such-and-such 
business had been offered this morning. 

Mr. Edmonds. It would be my presumption that men in the same 
line of business would naturally consult more or less. Certainly 



MARINE INSURANCE. 


205 

Mr. Rush in his company and Mr. Chubb in his company would not 
want to be running around the market, one writing at 7 per cent 
and the other at 3. Certainly they have got to consult with each 
0ti ir r to have, anyway, some evenness of rate. 

Mr. McGee. I am inclined to think that you have picked out the 
two men who do less consulting with anybody else, and who depend 
more exclusively upon their own judgment, than any other two men 
you could have picked out. 

Mr. Edmonds. Yes; that is true. I picked out the “kings” be¬ 
cause their nams were first on my memorandum; but I can under¬ 
stand that it would be the most natural thing in the world to do, 
because a man would have no basis at all to do business on unless 
he did consult with others in the same line of business. 

Mr. McGee. The thought I wanted to make quite clear was just 
this: There is nothing in the nature of any set conferring as to rates 
and conditions. 

Mr. Edmonds. I think we are agreed on that. It is a recommenda¬ 
tion— 

Mr. McGee. No; not even that. In nine hundred and ninety cases 
out of a thousand, in naming a rate, or accepting or declining a risk 
of any character, I would not have the slightest idea as to what rate 
my competitors were writing it at. There is no conference of any 
kind. 

Mr. Edmonds. What would happen if you wrote it too low ? 

Mr. McGee. If it was an account of Mr. Rush’s, and I took it at 
what he considered too lo\V a rate, he would probably make some un¬ 
kind remark to me the next time he saw me on the street, and say, 
“ Well, I am going to get one of yours in place of it.” 

Mr. Edmonds. But if you took it at too low a rate, would you be 
able to place it with your company? 

Mr. McGee. Oh, yes. The fact that I take it settles that question. 
On the other hand, if Mr. Rush was to take one of mine, I might 
make the same kind of unkind remark. 

Mr. Chindbloom. Suppose that you get an application for a large 
risk, too large for one company to carry, and you are not going to 
reinsure all of it in the companies in your office, would you not call 
up the representatives of other companies before you decided to 
underwrite that risk, to find out at what rate you could reinsure? 

Mr. McGee. No. If a risk were offered, as such, we would only 
take that part of the total line that we wanted to carry in our own 
office. The element of reinsurance generally only comes into play 
when we find that we have, through various accumulations and 
through various acceptances, taken more on a single steamer than we 
ought to have. All of the insurance companies have agents all over 
the country, and a great deal of business which comes to an insur¬ 
ance compan}^ in New York originates with agents in Buffalo, Chi¬ 
cago, Detroit, Cleveland, Omaha, Kansas City, or New Orleans. On 
a great many of those shipments, when they are bound by the agents 
in the local towns, all that the shipper knows is that he is shipping 
it on such-and-such a railroad and it is destined for such-and-such 
a steamship line. Now, when that shipment gets to the seaport and 
is loaded on board the steamer, it only then develops what steamer 



206 


MARINE INSURANCE. 


it is going on. We may have shipments which have been bound up 
in a dozen different places in the country congested on a single 
steamer, and we find ourselves with 5 or 6 or 10 or 20 times our 
net retention. Then we are forced frequently to go out and seek 
reinsurance; and that is where the element of reinsurance comes in. 

Mr. Chindblom. And then you are at the mercy of your competi¬ 
tors ? 

Mr. McGee. Then we are at the mercy of our competitors, and 
sometimes they are very unkind. 

Mr. Edmonds. They are mostly kind, though, I guess. 

Mr. McGee. Not very. 

Mr. Edmonds. Many of the associations have told us that they 
recommend rates. They informed the committee that. So I presume 
that there is a kind of general understanding. 

Mr. McGee. On a very limited number of lines of business; very 
limited. 

Mr. Edmonds. I think there were probably eight or nine associa¬ 
tions that told us they recommended rates. As a matter of fact, we 
have the prices or rates of some of the associations. 

Mr. McGee. The only price lists that I know of—I think there are 
only three that I can recall—are the New England Hull Underwriters’ 
Association, the Provincial Hull Underwriters’ Association, and the 
Atlantic Inland. Those three lines deal with lines of business which 
are notoriously unprofitable, and on which the markets were falling 
•down to such a point that the assured could not get sufficient insur¬ 
ance, and the conduct of those associations was really more for the 
benefit of the merchant and the shipowner than it was for the benefit 
of the underwriter. Of course, the underwriter looks out for himself. 

Mr. Chindblom. Those are associations of shipowners, are they? 

Mr. McGee. No; of underwriters. 

Mr. Thacher. May I suggest, Mr. Chairman, that you give Mr. 
McGee the names of the associations you have in mind? Then you 
-could at once get a line on whether they are important or trivial. 

Mr. Edmonds. There are those small New England associations. 
I have here, “Lumber agreement on Great Lakes; joint grain certifi¬ 
cates.” 

Mr. McGee. Joint grain certificates? I do not think that is a rate- 
making organization. 

Mr. Edmonds. It is a rate-making agreement? 

Mr. McGee. No; I think not. I think the joint certificates mean 
this: That different shippers have taken out insurance, each with its 
own set of underwriters, and that those underwriters have agreed to 
issue one single document instead of each one issuing its own definite 
insurance certificate. I do not understand that there is any rate 
agreement there. 

Mr. Edmonds. The rates generally are very even on that lake busi¬ 
ness ? 

Mr. McGee. Yes. 

Mr. Edmonds. There is very little difference between rates, and 
very little speculation in them ? 

Mr. McGee. The rates remain about the same, but I think they 
have a question of discounts and allowances which have a consid¬ 
erable effect on the rate. 


MARINE INSURANCE. 


207 


Mr. Chindblom. That reminds me, Mr. Chairman, with reference 
to the burlap agreement. Is there a joint or common certificate of 
insurance used there? 

Mr. McGee. No, sir. Each company issues its own policy with¬ 
out relation to anybody else. 

Mr. Edmonds. Subject to the agreement? When he does issue the 
policy, it is subject to the agreement? 

Mr. McGee. I think the great bulk of the burlap policies were 
issued long before there was any agreement. 

Mr. Edmonds. No; I meant subject to the reinsurance- 

Mr. McGee. Subject to the division by reinsurance; yes. 

Mr. Edmonds. That, of course, saves a good deal of bookkeeping? 

Mr. McGee. It makes more bookkeeping. 

Mr. Edmonds. At the end of the month it does; but really it saves 
you a good deal of trouble in corresponding back and forth every 
time you take a policy? 

Mr. McGee. Of course we do not take policies every day in the 
burlap business. 

Mr. Edmonds. If I were in the burlap pool, and I had taken an 
insurance policy for $600,000 on some burlap, automatically it be¬ 
comes a part of the burlap reinsurance agreement? 

Mr. McGee. Yes; but the burlap policies are not issued for each 
separate insurance or each separate shipment. The burlap import¬ 
ers make a contract with their insurance company for the coverage 
of all of their importations, so that a policy issued by an insurance 
company for a burlap importer might have been issued 5 or 6 or 10 
years ago. It is a running contract. 

Mr. Edmonds. But does not the rate change on those from time to 
time? 

Mr. McGee. It depends entirely upon the class of steamer, and 
they do fluctuate somewhat. 

Mr. Edmonds. It is a matter of adjustment, is it not? 

Mr. McGee. It is a matter of adjustment. 

Mr. Edmonds. The Provincial Underwriters Association—that is 
one of those small ones in New England? 

Mr. McGee. Yes. 

Mr. Edmonds. The American Schooners Association—that is the 
same thing? 

Mr. McGee. That is the same thing. 

Mr. Edmonds. Cotton Marine Insurance? 

Mr. McGee. That, of course, is an important thing. 

Mr. Edmonds. They state they have rates. How about the Utah 
association ? 

Mr. McGee. I did not know that was still alive. 

Mr. Edmonds. They have some friends here, have they not, from 
their questionnaires? 

Mr. McGee. Apparently they have, but I did not know that any 
of those Utahs were left for insurance purposes. 

Mr. Edmonds. What is the Atlantic Inland Association? 

Mr. McGee. That is an association of companies wEich write what 
might be termed river and harbor business—barges, canal boats, tug' 
boats, and scows. 

Mr. Edmonds. Does it cover the whole Atlantic coast? 



208 


MARINE INSURANCE. 


Mr. McGee. Practically so. Tliat was a business which had gotten 
down to such a point that the owners could not get sufficient insur¬ 
ance, on account of the bad record of the business. 

Mr. Edmonds. Does this association act the same as the cotton, the 
burlap, and all those? 

Mr. McGee. I do not know. 

Mr. Edmonds. I do not believe it does. 

Mr. McGee. I am not familiar with the Atlantic Inland Associa¬ 
tion at all. 

Mr. Edmonds. I presume it is to cure the evils that exist in the 
barge business. 

Now, on the hull business on the Great Lakes, in these steel freight¬ 
ers up there, the insurance is all rated at the same value per ton and 
at the same rate, whether they are old or new ships, is it not ? 

Mr. McGee. Substantially so; yes. 

Mr. Edmonds. Why is that ? Do they make an average on it ? 

Mr. McGee. No. The hull situation on the Lakes is a little bit 
peculiar. For a great many years a very large part of the lake insur¬ 
ance was placed in foreign companies. The rates were erratic; there 
was a great deal of competition and conditions were bad. The lake 
shipowners got together and formed what was known as the Great 
Lakes Protective Association, which is an association of shipowners. 
There were several objects in it. One of them was the question of 
governing their captains. Another thing was, I suppose, to prevent 
competition between themselves in the employment of masters. How¬ 
ever, that part of it I do not know much about. But year by year 
they extended their activities, so that it came to marking out safe 
channels, the enforcement of regulations for laying up vessels, the 
punishment of masters for incurring disaster, so as to keep masters 
from having accidents. Then in the course of time they took up the 
question of insurance, because they were paying differing rates, and 
apparently they came to the conclusion that by massing their business 
all into one set of hands they could dictate better terms to the in¬ 
surance companies. The Great Lakes Protective Association then 
began assuming—something like a mutual insurance company—a 
part of the insured value of the vessels owned by members of that 
association. I believe that the first year, and perhaps the first two or 
three years in which the Great Lakes Protective Association was in 
existence, the association assumed 5 per cent of the value and carried 
it as they would a mutual insurance company. 

They afterwards extended it to something like 25 per cent. After 
it had been in force for several years they had acquired an experience,, 
and then the Great Lakes Association set down for their own business 
a form of policy which they would grant to their members, and they 
fixed the value per ton at which they would insure the hulls and they 
fixed the rate of premium—the initial deposit rate of premium per¬ 
haps you might call it. Then the stock insurance companies were 
met with the condition that they must do the same thing. So the fact 
that there is a uniformity in policy, in rates, and in conditions and 
privileges and prohibitions arises entirely from the fact that the stock 
companies are following what is set down by the Great Lakes Pro¬ 
tective Association. 

Mr. Edmonds. Does that cover hulls? 


MARINE INSURANCE. 


209 


Mr. McGee. That is for hulls. 

Mr. Edmonds. Do we carry in our own companies most of that 
insurance? 

Mr. McGee. I es, sir; I think the great bulk of that is placed in 
American companies, or placed in the American market, which, of 
course, would include admitted foreign companies as well as native 
companies. 

Mr. Edmonds. What is the reason that so much of this insurance 
goes to companies that are not admitted companies? 

Mr. McGee. It is entirely a question of rate; almost entirely. So 
much of the cotton business, for instance, and burlap business goes to 
foreign companies because the ownership of the cotton is vested in 
people who are nonresident in the United States. 

Mr. Edmonds. But ought not all companies that do business here 
to be admitted companies? Of course, that brings up the question r 
I suppose, right away, what are you going to do with an international 
company. 

Mr. McGee. Exactly. If an insurance company that has its office 
in London will not come into the United States to get business and will 
get all the business it can in London, you can not make them come 
here. 

Mr. Edmonds. No; I suppose that is true. 

Mr. McGee. If he is determined to be an outsider, he is going to be 
an outsider. 

Mr. Edmonds. What do you know about that gold situation during 
the war, in connection with the South American shipment transacted 
by the New York banks? 

Mr. McGee. I know there was a great deal of talk about it. I know 
that we Avrote considerable of it in our companies. 

Mr. Edmonds. You wrote it in your companies for foreign com¬ 
panies? 

Mr. McGee. No: Ave Avrote it for American bankers. 

Mr. Edmonds. You wrote it for American bankers, but you Avrote 
for foreign companies? 

Mr. McGee. No; Ave Avrote for domestic companies. We have no 
foreign companies. 

Mr. Edmonds. And you insured that gold going to South America 
in your domestic companies? 

Mr. McGee. In our domestic.companies. There Avas a period of 
time Avhen war conditions Avere exceedingly dangerous and Avhen the 
British Government Avas seizing things right and left. We wanted to 
be well paid for any risk that we took. 

Mr. Edmonds. That situation, as I understand at this time, was 
that the English Government refused to allow any gold to be insured 
for export and import unless it Avent from England. Is that true ? 

Mr. McGee. I have heard rumors to that effect. I have seen that 
in the public prints; that is about all I knoAV of it. The gold which 
was going to South America was supposed to have a German taint; 
it was going to South America for the purpose of either discharging 
German obligations there or else finding its way to Germany. 

Mr. Edmonds. The statement made to me Avas that the British Gov¬ 
ernment forbade English insurance companies to write any gold ex¬ 
cepting to or from England. 


210 


MARINE INSURANCE. 


Mr. McGee. I have heard that that was so. 

Mr. Edmonds. Following the action of the English Government, 
certain large underwriters in this country refused to write gold; is 
that true? 

Mr. McGee. I think that is true; the reason for it being that if the 
shipments were made they felt pretty sure that the British Govern¬ 
ment would adopt means to seize the vessels and take the gold, which, 
of course, would result in a total loss to the underwriters. 

Mr. Edmonds. Then you nobly rushed to the rescue with your 
American companies and you insured it, and the British Government 
did nothing of the kind ? 

Mr. McGee. We did it when we thought there was little or no 
danger of the British Government doing it. We did not do it at the 
height of the danger point. 

Mr. Tpiacher. Between what points was this? That is new to me. 

Mr. McGee. From New York to Buenos Aires. 

(After informal discussion off the record:) 

Mr. McGee. The attitude of the American insurance companies, 
of course, would be measured by this condition, too: The big bank¬ 
ers had placed all that gold insurance with the British insurance 
companies, purely on the question of rate. When the British insur¬ 
ance companies would not insure them, they came to the Americans. 
My own attitude toward the risks when they were offered to me was 
this: “ Oh, yes; when everything was lovely you went somewhere else. 
Now that it is a hard and difficult and dangerous risk, and your own 
underwriters won’t take it, you come to me.” 

Mr. Edmonds. “ So we will put the rate up 3 per cent.” 

Mr. McGee. “ You will pay me my rate or I won’t help.” 

Mr. Edmonds. I do not blame you. 

Mr. McGee. I believe that was the general attitude toward that 
business. 

Mr. Edmonds. There were two or three underwriters that made a 
practice in this country of writing gold. 

Mr. McGee. And writing it extremely cheap. 

Mr. Edmonds. Yes; and they, at the time when the English Gov¬ 
ernment promulgated this decree, fell down and refused to write gold 
for our shipments; and it was just at the time when we were endeav¬ 
oring to establish banks and to open up our South American trade. 

Mr. McGee. And those same banks, when they got over that, went 
right back to where they were before. 

Mr. Edmonds. I want to go a little bit into the brokerage business. 
They tell me you know all about the brokerage business. 

Mr. McGee. Brokers or brokerage ? 

Mr. Edmonds. Insurance brokers. 

Mr. McGee. Brokers; yes, sir. 

Mr. Edmonds. Do you know of any arrangement or agreement be¬ 
tween brokerage concerns and foreign insurance agents ? 

Mr. McGee. I known of none. I do know that there are some 
brokerage firms in New York who apparently are also agents of some 
foreign insurance companies. 

Mr. Edmonds. There are brokers in New York that are agents of 
foreign insurance companies, but are there brokers in New York 
who also have an agency in London or an agreement with London 
houses ? 


MARINE INSURANCE. 


211 


Mr. McGee. Oh, yes; practically all the large brokerage houses in 
JNew lork and Philadelphia have correspondents in London. In 
some cases those foreign connections are virtually branch houses. 

^ . Edmonds. Are they under any agreement to give those houses 
certain lines of business or certain amounts of business ? 

Mr McGee. I do not know of any, but I should suspect that it 
would be a very natural sort of thing. 

Mr. Edmonds. They do not, of course, come to you at all except for 
business that they are going to place here? 

Mr. McGee. Except for business that they are going to place here. 

Mr. Edmonds. Business that they eventually intend to put through 
their London office they do by cable, or something of that sort ? 

Mr. McGee. Yes; they do it by cable. 

Mr. Edmonds. Do you want to name any of those concerns? 

Mr. McGee. I should say they all do it. 

Mr. Edmonds. Does Wilcox, Peck & Hughes have a London office? 

Mr. McGee. They have a London correspondent. I do not know 
just how close the tie is. 

Mr. Edmonds. Mather & Co. ? 

Mr. McGee. He has two or three correspondents in London. 

Mr. Edmonds. He has no office of his own? 

Mr. McGee. Not that I know of; not under his own name. 

Mr. Edmonds. Johnson & Higgins? 

Mr. McGee. Johnson & Higgins have correspondents in London; 

yes. 

Mr. Edmonds. And Hall & Co.? 

Mr. McGee. Frank B. Hall & Co., I believe, have their own house 
there—C. P. Stewart & Co. 

Mr. Edmonds. What is the nature of these agreements; have you 
any idea? 

Mr. McGee. No; I have no idea whatever. 

Mr. Edmonds. I presume they are simply a business partnership ar¬ 
rangement between the two, or something of that kind? 

Mr. McGee. Something of that kind; and I think very frequently 
it is nothing more than a mere arrangement to correspond and ex¬ 
change business, offer one another business to be placed. 

Mr. Edmonds. Do you suppose they have arrangements by which 
they divide the business up, half over there and half here? 

Mr. McGee. I have no idea whatever. 

Mr. Edmonds. Would that be a natural thing for them to do? 

Mr. McGee. That would be a very natural thing, and I suspect that 
it exists, but I have no knowledge of it. 

Mr. Edmonds. Are these brokers working on their own capital? 

Mr. McGee. Surely. 

Mr. Edmonds. Are any of them financed by the insurance com¬ 
panies ? 

Mr. McGee. I should not think so. I should very seriously doubt 
it. You see, the broker is a free lance, and so far as the insurance 
company is concerned the broker’s hand is against the insurance com¬ 
pany. He is out to get the best of any insurer that he can. He is 
employed by the assured—the shipowner or the merchant. 

Mr. Edmonds. That is true on the face of things, but underneath 
are there not officers in insurance companies who are interested in 
brokerage houses? 


212 


MARINE INSURANCE. 


Mr. McGee. I do not know of any, excepting in one case. 

Mr. Edmonds. Naturally they would not advertise it. 

Mr. McGee. Well, there are two cases, perhaps, that I know of. 
Mr. Stewart is connected with the American Merchant Marine In¬ 
surance Co., and the directors of Wilcox, Peck & Hughes are con¬ 
nected with the Maritime Underwriting Agency, which underwrite 
for a group of foreign companies. 

Mr. Edmonds. They are developments made probably since these 
men went into business? 

Mr. McGee. Yes; I think it is an outgrowth of it. 

Mr. Edmonds. An outgrowth of the business, but is it a customary 
thing, or do you know whether it is done, for an officer of an insur¬ 
ance company to start up a new man in the brokerage business and 
capitalize him ? 

Mr. McGee. I never heard of it. 

Mr. Edmonds. Or for the company itself to do it? 

Mr. McGee. I never heard of it; not in the brokerage business. 

Mr. Edmonds. Have any of the foreign companies ever backed up 
insurance brokers of that kind? 

Mr. McGee. The companies not admitted to the country, what we 
call nonadmitted companies, I think very often do give brokers carte 
blanche to get business. Very often British underwriters will give 
to British insurance brokers facilities or commitments of some kind 
whereby those British insurance brokers will come over here and 
solicit business. A great part of the sugar business was taken out of 
American market 8 or 10 years ago by just such means. But that 
was a foreign insurance broker, not an American. 

Mr. Edmonds. Have you folks given any particular consicleration 
to this export insurance? You heard me explain what we mean by 
export insurance; I do not know whether you call it that or not. 

Mr. McGee. Yes, sir. 

Mr. Edmonds. Insurance that is taken out of the country and 
placed outside the country to evade the tax? 

Mr. McGee. I understand. 

Mr. Edmonds. Have you given any consideration to whether there 
would be any method by which that could be prevented? 

Mr. McGee. Some of us have given a great deal of thought to it: 
I expect all of us have given a great deal of thought to it. There 
have been different opinions expressed, but I do not think there is 
anything that can reach it that has yet been suggested; because, as 
Mr. Rush pointed out this morning, there is no means of compelling 
any merchant or owner of either a ship or goods to take out in¬ 
surance at all. In the next place, he is a perfectly free agent, and 
even by the laws of some of the States he is excluded from the opera¬ 
tion of laws which are intended to keep insurance within the State. 
And even if that were not so, it is so easy to make terms of sale 
which would take the power to place insurance out of the hands of 
the American citizen or American resident. So there are so many 
loopholes that we know of, and so many that we can conceive of 
whereby any such law could be violated, that we do not see how any 
remedy could be applied. 

Mr. Edmonds. And yet it is very unfair to a man doing a legiti¬ 
mate business? 


MARINE INSURANCE. 


213 


Mr. McGee. It is absolutely unfair. It is unfair that an Ameri¬ 
can insurance company that is paying taxes to the city and the 
State and to the Federal Government should see the business of its 
own valued friends being send to foreign countries, where it can be 
placed at lower rates of premium than the American insurance 
company can afford to write it. Yet it is a condition which I think 
will apply to any foreign commerce, whether it be the buying or sell¬ 
ing of goods, or the buying or selling of freight space, or the buy¬ 
ing or selling of insurance. 

Mr. Edmonds. I ou experts ought to be able to get some cure for 
that. We want to keep it with you. 

Mr. McGee. We want to have it kept there. 

Mr. Edmonds. But here you come and discourage us right away. 
We are looking for a remedy, and we know that you know all about 
the business. 

Mr. McGee. We can conceive of no remedy, ourselves, that would 
be successful. We did think—we did hope that the placing of a 
tax such as was laid by the income-tax laws might do a good deal 
to discourage it; I mean the regulation that foreign insurance must 
pay a 3 per cent tax, equivalent to the stamp tax. But then the 
Supreme Court of the United States says that it is unlawful to tax 
exports, which immediately takes away from us the defense that we 
need and the business that we want the most. 

Mr. Edmonds. Do we want it bad enough to prohibit the export 
of it? During the war we have been learning things, you know. 
If we did not want anything to go out of the country, we stopped it. 

Mr. McGee. Yes. 

Mr. Edmonds. Would that be healthy for the business? 

Mr. McGee. It would and it would not. But, assuming that it 
would be healthy, supposing that legislation was passed to prevent 
the exporting of insurance to foreign countries. That would reach 
the insurance broker, perhaps, in cabling his orders; but the insur¬ 
ance broker would only have to turn around and say to the ship¬ 
owner, “Well, now, we may not do that, but if you will write a 
letter to our London house they can do it for you,” and your law 
does not reach that. Or the shipowner may write to his London 
branch and say, “ You will place the insurance through the corre¬ 
spondents of our New York brokerage friends in London.” That 
is not exporting; you can not reach that; you can not stop it. 

Mr. Edmonds. It seems to me there might be some way gotten 
at to reach that. I would like to see it reached. 

Mr. McGee. Of course any law that was passed would reach a cer¬ 
tain measure of it; there would be some of the fish that would be 
caught in the net. But the wiser fish would avoid the net. 

Mr. Edmonds. Yes; you would reach some, of course, but they 
would find a way of overcoming it, I presume, unless you could 
absolutely cause something to turn it this way. I imagine, too, that 
if you did that a good many of the foreign companies would come 
over here and establish branches of some kind and pay our taxes. 
That would help considerably. 

Mr. McGee. That w T ould help some, but I do not care how many 
companies are in this market you still will have brokers sending 
their business to foreign markets as a check on this. The broker 


214 


MARINE INSURANCE. 


claims that he is driven to it by competitive conditions. Broker A 
says, “ If I don’t try all the insurance markets of the world for the 
insurance of this fleet of steamers, then my competitor may go to 
those markets and beat me out. He may find a market which I 
haven’t sought out, and he may find conditions which will enable 
him to beat me out on that business and take it away from me bodily. 
Therefore I, broker A, am forced to try all of the markets of the 
world.” That is the broker’s defense to it. 

Mr. Edmonds. I suppose to a certain extent that is valid, too. 

Mr. McGee. It is a good, valid reason. 

Mr. Edmonds. I understand that your law in New York was 
amended so that rebates could be given on brokerage in marine in¬ 
surance. Is that right? 

Mr. McGee. I do not think it is correct. 

Mr. Edmonds. We were informed that there was an amendment 
made to the New York law that prevented the cutting of the com¬ 
missions. 

Mr. McGee. I think that what is meant by that is this: We had 
a very rotten condition in New York during the war period, when 
a large number of fly-by-night insurance brokers came into the 
business. That is to say, they were not insurance brokers at all. 
They were people who were wholly unfamiliar with marine in¬ 
surance, but who set up as insurance brokers and solicited business 
from merchants and then went around amongst the insurance com¬ 
panies to place it. Those people, a great many of them, took out 
illegal insurances—that is, they took out insurances which were not 
legal insurances, because there was no insurable interest behind them. 
They traded in those insurances and bought and sold them as they 
would merchandise. There was an investigation by the insurance 
department of the State of New York, which uncovered these prac¬ 
tices. Legislation was passed by the State which aimed at stopping 
rebates, which might be called an antirebate law, and I think it was 
so with this exception: It provided that an insurance broker who 
was appointed an insurance manager of a large corporation might 
act as such under annual salary, or a broker might contract with a 
large assured on a fixed-sum basis. Those were left legal. Of course 
that is not the language of the law, but that is the effect of it. 

Mr. Edmonds. In other words, a broker would go to a fleet office 
and accept a salary and rebate the percentage that he gets to the com¬ 
pany ? 

Mr. McGee. Yes; or he might contract for it. The reason for that 
is that a great many of the large trusts and organizations which have 
insurances to tremendous values frequently appoint an insurance 
manager, and that insurance manager is frequently an insurance 
broker, or lie may be connected with an insurance brokerage house 
and acting in his individual capacity: but some of them, I believe, 
are on a salary basis. “ We will attend to your insurance for a salary 
of so much per annum, returning to you all the commissions and 
brokerages which we get.” Or, as is sometimes done with the hull 
business, the insurance broker, instead of quoting a rate, may go to 
the shipowner and say, “ I will place the insurance on your fleet for 
so many dollars,” that number of dollars being the amount of pre¬ 
mium which he has got to pay to the insurance companies, minus 


MARINE INSURANCE. 215 

as much of his brokerage as he feels inclined to allow or thinks it 
necessary to allow. 

Mr. Chindblom. In order to get the business? 

Mr. McGee. In order to get the business. Another competitive 
broker may come along and do it for $25, $50, or $100, or $1,000, or 
$5,000 less. So the competition ceases to be one of rates and becomes 
one of dollars. Now, the law of New York State recognized those 
conditions by the exception which it made in the application of the 
anti-rebate law. 

Mr. Edmonds. Does not that open up the whole question of rebates 
in the marine business'? Is it not wide open? 

Mr. McGee. If you do it that way, yes; but, on the other hand, I 
think there is very little business that is really done in that way. It 
is only in the case of the huge trusts; for instance, an organization 
like the Standard Oil Co. I do not know what their arrangements 
are, but I take them for illustration in ignorance of any relationship 
they may have. The Standard Oil Co., for instance, has buildings 
and plants all over the country; they have vessels in all the various 
ports and harbors of the country. They may handle all of their 
insurance from one central point, appointing an insurance manager 
whose duty it is to look after that. 

Mr. Edmonds. Mr. Kush, does that obtain in Philadelphia? 

Mr. Rush. I do not think so, sir. 

Mr. Edmonds. Would not the natural drift of all insurance be to 
New York City under such an interpretation of the law as that? 

Mr. Rush. It would seem so; but I do not think so much on account 
of that law T as on account of superior facilities of New York over 
all other States in the country. I agree with Mr. McGee, that I do 
not think it is generally done. 

Mr. Edmonds. How long will it be before it is done? The law does 
not limit it to big aggregations. 

Mr. McGee. It could be done on a single ship, and possibly is done 
on a single ship; but that sort of thing could only be done where the 
values are large and the amount of premium is large, and correspond¬ 
ingly the amount of the brokerage is large. 

Mr. Edmonds. That would depend a very great deal on the man do¬ 
ing it. If he was a man who was living on $5,000 a year, if he could 
get 500 ships a year and get $10 out of a ship, he has got his living? 

Mr. McGee. Y es. 

Mr. Edmonds. Now, you know as well as I do that there is many a 
man in New York who if he could see that before him would be very 
glad to do it. I presume you have not yet educated them up to that 
point. Do you approve of that kind of a law ? 

Mr. McGee. I do not. 

Mr. Edmonds. I think it is a great mistake, myself. 

Mr. McGee. I do not approve of it, but it is what the insurance de¬ 
partment evolved. 

Mr. Edmonds. I think they had better reevolve something else. I 
think that is a very poor proposition. We have all gone through this 
insurance-rebate proposition for years, and it is pretty near time we 
got down to some basis. I as very sorry to hear that that situation 
exists. 

Mr. McGee. I am merely expressing what the law is. 


216 


MARINE INSURANCE. 


Mr. Edmonds. I want to ask you another thing: There is a loss on a 
ship. The broker represents the assured, and the broker gets the ad¬ 
juster. The broker naturally is in favor of the assured; he picks the 
adjuster, and naturally the adjuster is in favor of the broker. Do you 
think that is a good condition of affairs ? 

Mr. McGee. No, sir. 

Mr. Edmonds. That is what is done, though ? 

Mr. McGee. It has been done for a great many years. 

Mr. Edmonds. Why is it done ? 

Mr. McGee. I am afraid I should have to answer that very much 
as the little girl answered the question, “ Because it is.” I do not think 
the broker fixes the adjuster. I think the situation is this, that all too 
frequently the broker is the adjuster. It is a bad situation; it is an 
unhealthy situation. 

Mr. Edmonds. Is that true of large losses? 

Mr. McGee. Yes; in the United States. In England the broker and 
the adjuster are two separate persons. The adjuster in England is 
more like a lawyer. 

Mr. Edmonds. That is true of the fire insurance business here, too, 
is it not ? 

Mr. McGee. I do not know fire insurance; I would not want to pre¬ 
sume to speak on that. 

Mr. Edmonds. Mr. Rush, is the claim adjuster separate from the 
broker ? 

Mr. Rush. They have individual claim adjusters; almost all large 
fire companies have their own staff. 

Mr. Edmonds. What do you do in marine insurance ? 

Mr. Rush. We have our own adjuster, too. It happens in a big, 
general, average case, a case where the adjuster is mostly employed, 
that the shipowner appoints him, and very frequently, as Mr. McGee 
says, the adjuster is a big insurance firm. Johnson & Higgins, for 
instance, started as average adjusters and then took up marine insur¬ 
ance brokerage and became bigger marine insurance brokers than they 
were average adjusters. 

Mr. Edmonds. Does not that lead to a bad condition of affairs ? 

Mr. Rush. Not as bad as you would think, Mr. Chairman, because 
I think in a general average case it is a matter of law, and you can 
not get awav from it. They adjust it in accordance with the law and 
the statute. 

Mr. Edmonds. Can an adjuster make it very lenient in some cases? 

Mr. Rush. Yes, sir. 

Mr. McGee. The claim adjusters will very quickly pick it up and 
bring him to time. ♦ . 

The unpleasant feature about that situation is that as an adjuster 
the individual frequently gets knowledge of the business of other 
people which places his brokerage department in an advantageous 
position for soliciting the business of some other insurance company. 
It is unpleasant only because it puts the adjuster frequently in the 
position of getting information which is confidential and secret, 
which he uses for his own ends. 

Mr. Edmonds. Now, we have built up a large tonnage; we have 
got a very much enlarged business. Why don’t you folks in the busi¬ 
ness get adjusters, the same as in fire insurance? 


MARINE INSURANCE. 


217 


Mr. McGee. Because the adjusting of marine claims, general aver¬ 
age particularly, is a profession itself. It is a branch of the legal 
profession. A good average adjuster must be a pretty high-grade 
lawyer. He may not practice common law, or the general run—I 
<lo not know just what phrase to use for that—but lie is, after all, 
of lawyer caliber; professional caliber. 

Mr. Edmonds. The insurance companies could get them just as 
easily as the brokerage offices. 

Mr. McGee. Yes; but the adjuster comes in as a man who is acting 
between the shipowner and a large number of consignees. The ad¬ 
juster has nothing to do with insurance at all. If the steamer El Cid , 
from New York to New Orleans, meets with a general average acci¬ 
dent. when she arrives at New Orleans a statement of general average 
must be compiled, dividing the expenses, the general average ex¬ 
penses, over ship, freight, and cargo. Now, there may be hundreds 
of consignees of that cargo, and there is where the relationship of the 
average adjuster comes in. He is the man who sets forth what part 
of the loss which has been sustained is due from each one of the 
interests. He has no relationship whatever to insurance. Insurance 
comes in for the protection of the merchants or of the shipowner for 
the payment of the general average contribution which is due. A 
general average adjustment sometimes will consist of three or four 
bulky volumes. 

Mr. Edmonds. Yes; I have seen some of them. 

Mr. McGee. Now, it requires an expert to make them up. After 
the average adjuster has made up his adjustment, that adjustment 
comes before each one of the insurance companies, and the claims 
departments of the insurance companies pass upon that to the extent 
of that company’s liability. We may have insured part of the hull; 
we may have insured a dozen or two of the consignees on that vessel. 
We pick out our own liability. It would be an extremely difficult 
thing and an extremely expensive thing for each insurance company 
to maintain a staff of average adjusters to compile a case of that 
kind; and we would still be subjected to the criticism of looking at it 
front an individual viewpoint. 

Mr. Edmonds. Where would you get the adjuster in the case of the 
El Cid f 

Mr. McGee. The owner of the ship would nominate one adjuster, 
who would make up the statement. 

Mr. Edmonds. From the crew; from the officers? 

Mr. McGee. Oh, no. 

Mr. Edmonds. Where would he get a man to estimate that? At 
Habana. when he was there? 

Mr. McGee. Oh, no; the owner of the ship would appoint some 
average adjuster in New York or some other big city to make up the 
statement. That average adjuster is a trained expert. 

Mr. Edmonds. The report of damage would be made by the ship ? 

Mr. McGee. The shipowner would put the case in the hands of the 
average adjuster. The average adjuster would gather the informa¬ 
tion from the consignees of the cargo, from the shipowner himself> 
from the shippers of the cargo, from the crew, from the master, from 
every source; and he compiles the facts and distributes the loss. 


218 


MARINE INSURANCE. 


Mr. Edmonds. He is an expert in himself. Are these average ad¬ 
justers in the brokers’ offices generally? 

Mr. McGee. In a number of cases; yes—departments of brokerage 
offices. There is no relationship between a broker and an average 
adjuster; it is merely that the firm which does one frequently does 
the other. 

Mr. Rush. Mr. Chairman, may I interrupt for one moment ? 

Mr. Edmonds. Certainly. 

Mr. Rush. I used to be an average adjuster myself; I was a mem¬ 
ber of the Association of Average Adjusters of the United States 
and an associate member of the Association of Average Adjusters of 
Great Britain, and I want to clarify something that has not been 
brought out. / 

General average long antedates insurance. It antedates the birth 
of Christ; it is the oldest maritime law that is known. You must 
distinguish between general average adjustment, which involves the 
laws of the United States, England, France, and many other coun¬ 
tries, and the ordinary settlement of an insurance claim. The average 
adjuster may do both, but he would barely exist were it not for the 
law of general average. If there is a general average case, the owner 
in the United States almost invariably goes to an expert, practiced 
adjuster, who may or may not have an insurance annex to his firm; 
but in the settlement of a partial average case, the mere simple damage 
to a bale of goods, he probably will not bother with going to an 
adjuster and paying his fee. The broker will make it up in his own 
office. 

Mr. Edmonds. Does that give the broker leeway to show favoritism 
to shippers? 

Mr. Rush. I think Mr. McGee’s testimony covers the point accu¬ 
rately. It gives the insurance firm having an average adjusting de¬ 
partment information which an insurance firm not having an average 
adjusting department would not get. I do not think the adjusters 
ever rebate their fee; they are too high class to do that. 

Mr. Edmonds. Do you ever question those claims ? 

Mr. Rush. We always watch them very carefully to determine, 
first, whether they are correctly made up, and, secondly, whether the 
prices paid for labor and material are too high. We employ engineers 
and master mariners to do that very thing; and if w T e have a bill from 
Cramp’s shipyard which we thing is too much for that sort of work 
we have our experts go over it and see where it is wrong. 

Mr. Edmonds. Of course, you do not see the goods that are dam¬ 
aged? 

Mr. Rush. We have our inspectors. There are some sworn ap¬ 
praisers; there are two appraising firms that are often employed by 
insurance companies to impartially inspect the damage on damaged 
goods that come into the United States. They are supposed to be 
accurate, and I think they are accurate and fair-minded. 

Mr. Edmonds. Of course, that put you on your guard all the time, 
and whatever kind of damage you get, you have to watch it? 

Mr. Rush. Yes. 

There is another thing I should like to say. You asked Mr. McGee 
whether there was not some friendly meeting, at a lunch or some¬ 
where, to make rates. Outside of these various little associations that 


MARINE INSURANCE. 


219 


never happens. The way rates are made is on the individual experi¬ 
ence of each individual company. The facts being the same, the 
deductions will probably be the same. I will make a rate on ship¬ 
ments of linens from Liverpool, or burlaps, to the United States. 
The Atlantic Mutual will make a rate; the Hartford will make a rate; 
and those rates will very closely approximate, because the same con¬ 
ditions apply to them. I remember one instance in which my com¬ 
pany was engaged in insuring large values of wool from the east 
coast of South America to New York and Boston, amounting to many 
millions of dollars. Other insurance companies were doing the same 
thing. 

These wool men in Boston would get together and compare their 
insurance rates to see whether any one of them was being stuck. 
They found out, over a period of years, taking myself and one of my 
leading competitors, that while our rates at times varied as much as 
half a per cent on a vessel, that on the total amount of insurance, 
equal amounts, we were not more than a couple of hundred dollars 
apart on the total premium. That was simply because the same 
statistics gave the same results to two entirely separate insurance 
companies who never said one word to each other about it. 

Mr. Edmonds. Do you furnish those statistics to each other ? 

Mr. Rush. Certainly not. 

Mr. Edmonds. That is your stock in trade ? 

Mr. Rush. That is our stock in trade. We keep them under lock 
and key. 

Mr. Edmonds. Did you ever hear of a case where an adjuster, 
who was also a broker, took a line of insurance at cost, rebating all 
his commission, providing the adjusting would be done through his 
firm; and did he arrange afterwards to pay something for getting the 
insurance to the party, so that he could get the adjusting? 

Mr. McGee. I have heard such stories; I do not know it to be a 
fact. 

Mr. Edmonds. How near true do you think they are ? 

Mr. McGee. I suspect they are pretty nearly right. 

Mr. Edmonds. You know the concern? 

Mr. McGee. I know the gentleman; yes, sir. 

Mr. Edmonds. Did he make money on that deal? 

Mr. McGee. If rumor was right," he had to work three or four 
years for nothing. In other words, he could not make good on his 
bit for the insurance. 

Mr. Edmonds. He certainly could supply the insurance, could he 
not ? 

Mr. McGee. Certainly; but not at the price which he expected to 
get. 

Mr. Edmonds. He could not afford to pay the bonus? 

Mr. McGee. That is about right. Of course, that is the story. I 
am not vouching for the facts. 

Mr. Edmonds. It is a rather unusual circumstance for a man to do 
all that, is it not; or is the competition so stiff in the business that 
you have got to do that kind of thing? 

Mr. McGee. No; that particular gentleman is a very resourceful 
gentleman, and sometimes he adopts queer expedients to accomplish 
his ends. 


•220 


MARINE INSURANCE. 


Mr. Edmonds. Did his end come after working that way? 

Mr. McGee. No. I believe he still lias the business. Now he is 
making some money on it. In other words, he was dealing in 
futures. 

Mr. Edmonds. He was perfectly willing to work for a few years 
for nothing? 

Mr. McGee. Yes. 

Mr. Edmonds. Do the companies ever give brokers excess commis¬ 
sions in order to induce them to divert business to them? 

Mr. McGee. I believe that is done; I do not know that it is so. 
Of course there is no hard and fast rule as to the rate of brokerage. 
There is no law on the subject. The question of allowances for 
brokerage is very largely within the control of the individual under¬ 
writer. He may be willing to pay 10 per cent for a general line of 
business. If there is something particularly good that he would 
like to have, he may be willing to pay 15 per cent. On the other 
hand, he may know that the market is so congested that Mr. Broker 
must come to him anyhow, so he will say, “ I will only take it for 
•5 per cent.” 

Mr. Edmonds. Is there a brokerage commission in marine insur¬ 
ance as low as that? 

Mr. McGee. In many lines I think it is. When I first came into 
the business the standard insurance brokerage was 5 per cent; then 
it was raised to 7 $. 

Mr. Edmonds. Fire insurance is better writing, is it not, for the 
broker ? 

Mr. McGee. No; because the fire insurance commission, while it 
is higher, is calculated on smaller units. The marine insurance 
broker is better off with a 10 per cent commission than a fire insur¬ 
ance broker would as a rule be with a 20 per cent commission. The 
premiums are larger, and then a great deal of marine insurance 
business is done automatically. Once the broker has done his work, 
it is something like a pension; it goes on for a long time without 
his doing much, if any, more work. It is purely detail; purely 
clerical. 

Mr. Chindblom. He gets his commission as long as the policy 
runs ? 

Mr. McGee. As long as that policy is in existence, which may be 
many years. 

Mr. Edmonds. Cutting commissions, I suppose, is another thing 
that is allowed by the freedom of the New York laws in connection 
with marine insurance? 

Mr. McGee. Yes; of course there is no law in New York so far 
as fire insurance is concerned. If a fire insurance company is likely 
to pay only 10 per cent commission or brokerage, I do not under¬ 
stand there is any law which would make them pay 15. 

Mr. Edmonds. Is there not a kind of agreed insurance commission 
of 25 per cent on small business and 15 per cent on large ? 

Mr. McGee. I am not qualified to speak on that. 

Mr. Edmonds. It is regulated by the Fire Underwriters’ Associa¬ 
tion ; I thought some association regulated it. 

Mr. McGee. The Fire Underwriters’ Association may do it. 


MARINE INSURANCE. 


221 


Mr. Edmonds. Of course, that is not State law; it is simply an 
agreement. I do not think Mr. Thacher has got that shipment of 
gold. It was January, 1917; that was before the war. 

Mr. Chindblom. We went into the war April 17. 

Mr. Thacher. You see the same point should receive considera¬ 
tion, because if they were what you might call “ enemy destination,” 
or any intent of that sort, it would be unlawful for one of our com¬ 
panies to cover, if not in law, it would be a perfectly good proof for 
a belligerent to seize it, which would increase the hazard of the risk. 

Mr. Edmonds. It was a shipment of gold by the National City 
Bank and the Mechanics’ & Metals Bank to their branches in South 
America, was a perfectly legitimate shipment of gold, and it seemed 
to run into a good deal of trouble. 

Mr. Thacher. I do not know anything about that particular ship¬ 
ment, but you know, of course, there are various shipments held as 
enemy destination, destination undisclosed. I do not say anything 
about this particular one. 

Mr. Edmonds. Is there any other statement you want to make,. 
Mr. McGee? 

Mr. McGee. Not any, sir. 

Mr. Edmonds. You know about this, do you not? 

Mr. McGee. Which one, please? 

Mr. Edmonds. Was there more than one? 

Mr. McGee. I do not know. It does not look familiar to me. 

Mr. Edmonds. This is a copy of the original. 

Mr. McGee. Of the Association of American Underwriters? 

Mr. Edmonds. Addressed by Thomas McDonald to F. H. Orborn,. 
secretary. 

Mr. McGee. Yes; that is the one. Mine is a mimeograph copy. 

Mr. Edmonds. Two weeks before you sent this down to us I had 
the first paragraph and a general digest, so I knew what was coming. 

Mr. McGee. Yes; I had that copv. 

Mr. Edmonds. When I read this the other day—“ it must be borne 
in mind that the American marine insurance facilities have just 
undergone ”—I said that sounds like an old story T read about 
three weeks ago. Is there anything here yould like to talk about, 
Mr. McGee? You are pretty well posted on this insurance business; 
they tell me you know it all; that you are now the big mogul in 
insurance. 

Mr. McGee. No; I do not flatter myself with any such a thought. 

Mr. Chindblom. That is modest. 

Mr. Edmonds. He is the head of the big association we are going 
to put on the map and get it to working again. You stated that the 
absence of any considerable amount of hull insurance is due to the 
fact that but few vessels are registered under the American flag en¬ 
gaged in world-wide commerce. 

Mr. McGee. You see, hulls are insured by the Government, not 
by the companies. We really have nothing by way of experience 
on which to base anything in the nature of a rate. 

Mr. Edmonds. In that connection let me say to you this. I he 
recommendation to the Shipping Board, and it has to come to a cli- 
max before very long, is they be allowed to continue in insurance of 


222 


MARINE INSURANCE. 


hulls. I think I am fair in saying the desire of the committee is 
they should not do anything of the kind. Now, if it means the pay¬ 
ment of these premiums to England and these underwriters, then 
it would be a very serious question with the committee Avhether or 
not to continue it. 

Mr. McGee. The American underwriter, I believe, would go, and 
by that I mean the native American insurance companies, could go 
a long way toward insuring the full value of those vessels, provided 
they are given the whole business in order to get the spread and 
and the average. The bulk counts for a great deal in marine insur¬ 
ance. If they had that great bulk of premiums which would ensue 
from that, I have no doubt that the great majority of the companies 
would very broadly extend their lines. Where my companies do 
take $50,000 if I had a bulk of business of that kind I unquestion¬ 
ably would take one hundred or one hundred and fifty thousand, 
because I am spreading the possible loss: I am spreading the losses 
which will occur over a larger number of individual risks on which 
no loss will occur to take care of those risks on which the losses'will 
occur. If I have only a small number of risks the proportion of 
probabilities are that I shall get more losses on a small income than 
that income will pay. Put it in another way. Say, for instance, 
there are bound to be 10 total losses in the year. If I have but 
100 risks I am pretty likely to get 5 out of this 10 losses, but if I have 
a thousand risks I may get the full 10 losses, but I have manifolded 
my premium income without increasing my loss outgo in the same 
ratio. That is what I mean by the spread of risks. 

Mr. Edmonds. Very much the same thing is true of the shipping 
business in connection with the writing of bonds ? 

Mr. McGee. Yes. 

Mr. Edmonds. A man has 100 ships, if he loses one ship he loses 
1 per cent of his ships. If he has only four ships he loses 25 per 
cent of his ships. That is the reason why this question of bonds 
and mortgages is up to-day. 

Mr. McGee. Of course, when marine underwriters first began to 
talk about the question of insurance of the Shipping Board’s vessels 
we had in front of us the thing that we look upon with the utmost 
horror, that is the wooden ships. 

Mr. Edmonds. So did we. 

Mr. McGee. We looked upon them with the utmost horror. And 
those of us who had had experience in olden days with wooden 
ships had more than an inkling of what it meant. ' The Providence 
Washington Insurance Co., which is one of those I represent and 
which I have been connected with for ,35 years, was organized in 
1799. It has been through the country’s history of shipping, and 
they had their records that were always" available to me that covered 
at least 60 years of that time of their life, and their figures pretty 
closely analyzed the results with wooden ships, as a decadent trade. 
Of course, during the life and activity, the great activity of the 
Nation as a wooden ship owner, things were kept up, but ships began 
to go down, steel replaced them, and the wooden ship, whether sail 
or steam, was a dread. 

Mr. Edmonds. Who insures these wooden ships that are running 
m private ownership, those that have been sold by the Shipping 
Board to the Franco-American line? 


MARINE INSURANCE. 


223 


Mr. McGee. I do not know. 

Mr. Edmonds. Can they get insurance? 

Mr. McGee. Those of them that are good, that are real good, sea¬ 
manlike ships, can get insurance at very moderate rates, but there is 
such a large number of them, I do not know just how to characterize 
them, that are unseawortliy. A house carpenter can not build a 
ship. 

Mr. Edmonds. Suppose we were to start out these real American 
companies and as we sell them ships from the Shipping Board we 
require them to insure their hulls in any one of these 30, 35, or 40 
companies. I assume that would be met with a great cry of pleasure 
by the New York insurance agents? 

Mr. McGee. I believe it would. 

Mr. Edmonds. It would leave out those companies that have for¬ 
eign influences and evidently show their desire to encourage foreign 
insurance as much as possible, and only pick those that are as nearly 
as possible pure American companies. Do you think we would build 
up an insurance line in this country ? 

Mr. x»icGee. Forty companies, the average line on those 40 com¬ 
panies I should estimate would be $25,000. Some would write more 
and some less. I think you would come pretty close to taking care 
of almost any vessel, and if you were met with a condition of that 
kind—if that thing is going to occur—I have not the slightest doubt 
but what a large number of the American companies would do 
yeoman service and stretch their capacity to the utmost to meet the 
condition. 

Mr. Edmonds. Of course we could reduce our line very materially 
to those companies that have shown in their disposition and manner 
of doing business that they were not going to try to hold the 
insurance in this country. Would that be a good stimulus for Ameri¬ 
can insurance companies? 

Mr. McGee. Undoubtedly. I think undoubtedly it would bring 
into the business a great many of the American fire insurance com¬ 
panies that are now reluctant to take it up. You see, American 
marine insurance, as a whole, is to-day in the doldrums - there is not 
much business going; there is not much export business going; there 
is a limited number of vessels sailing, and those vessels are not of the 
prewar high class. I mean the regular line traders. For instance, 
we have not the high-class steamers of the Southern Pacific Co., 
trading between New York and New Orleans. I suspect a good 
many of those ships are still in Government or other service. I have 
not checked it up lately to know, but I use that merely as an illus¬ 
tration of what I mean. 

Mr. Edmonds. But I presume all ships are busy now, are they 
not? A great many of them, though, are making very poor voyages, 
but I imagine there is cargo for every ship, for I certainly have m 
my office demands for ships. They are crying for ships, and cer¬ 
tainly there must be business for ships that are going. 

Mr. McGee. Business for ships that are going. 

Mr. Edmonds. And they have all got to be insured? 

Mr. McGee. Yes; but a great many of these cargoes are insured 
in foreign countries, though—their own. 

Mr. Edmonds. Every time you say that you kind ot make me ieel 
sorry to think you have not brought out some scheme to prevent it. 


224 


MARINE INSURANCE. 


The president of the American Hull Association and secretary of 
12 companies or underwriter for 12 companies, and so forth—I think 
if I were in your place I would lay awake at nights to stop that. 

Mr. McGee. I do. 

Mr. Edmonds. I see you recommend here the establishment of a 
model law in the District of Columbia. The District of Columbia is. 
something like Switzerland, you know it has not any navy. 

Mr. McGee. No; it has not any navy. 

Mr. Edmonds. I presume what you meant there was a general 
insurance law along the lines of what we thought would be a model 
law for the District of Columbia to work on, and that would some¬ 
what prove a basis for the other States? 

Mr. McGee. Our thought was just this, that if a model law w T aa 
worked out and adopted as the law of the District of Columbia, 
that that law would be largely adopted by a great many of the 
States and grow to be the model law for them to work on. A good 
many of the States now have law T s which are quite inapt for marine 
insurance. Some of the States, which have no marine, which do not 
touch the seaport, still have laws which are applicable to marine 
insurance. Those laws are exceedingly troublesome to the marine 
insurance companies at times. They are troublesome because the 
State frequently reaches out beyond its own confines; it goes so far 
as to say, for instance, that if you do that class of business anywhere, 
we will tefuse you admittance to our little State. 

For instance the Insurance Commission of the State of Oregon, I 
think it was, recently said to an insurance company organized in 
Texas for casualty and liability workmen’s compensation, because 
that company had in its charter the right to do a marine-insurance 
business, although it did not purpose to exercise that right—the 
insurance commissioner of the State of Oregon said : “ You have more 
rights under your charter than is granted to a company of our State, 
and therefore you can not come in. Now, if you will cut out of your 
charter the right which you purpose to transact a marine-insurance 
business, we will permit you to come in.” Well, Mr. Insurance Com¬ 
pany said : i( We do not purpose doing a marine-insurance business in 
the State of Oregon, and there is considerable doubt that we will do 
it anywhere.” It did not make any difference. He said : “ You have 
the right to transact merchant-marine insurance, and therefore, as a 
casualty company, you are not admissible to this State.” It is merely 
a freak of the law of the State of Oregon that it just happened to fit 
into a condition of that kind, and the insurance commissioner of that 
State was a gentleman that exercised all the prerogatives of his office, 
and that company literally had to reorganize and cut out of its charter 
the right to do a marine-insurance'business. 

Mr. Edmonds. Let me ask you something? If we were to pass a 
bill for the incorporation in the District here, a model bill, as you 
call it, it would not be of any particular advantage except as a model 
law? 

Mr. McGee. As a model law. 

Mr. Edmonds. Your companies would not come down here and 
transfer your incorporations to the District of Columbia and have an 
office here and virutallv call it your home office and then go up to the 
State of New York and do business? 


MARINE INSURANCE. 225 

Mr. McGee. No; but. on the other hand, because it would not be 
of any avail to us outside. 

Mr. Edmonds. No; because you have to follow the State laws 
anyhow ? 

Mr. McGee. Yes, sir; that is quite true; but if the question of legis¬ 
lation is undertaken in some of these nonmaritime States, or in some 
of the maritime States that are now becoming prominent in maritime 
affairs, which is considerable, they might adopt that law as being 
something under which they could work. 

Mr. Chindblom. It would be a model law, is all ? 

Mr. McGee. That is all it would be. A good many of the States 
and legislatures of man}' of the States enact laws and they are grop¬ 
ing for an answer. They do not know what they want. They want 
to reach a certain definition, but do not know how to do it. If there 
were on the books of the District of Columbia a model law and they 
turned to that law, they have got something to start with. That is 
about all there could be to it. 

Mr. Edmonds. Are you folks making any endeavor to get your 
legislature to put back in the law prohibition against cutting of 
brokers’ commissions ? 

Mr. McGee. We can not see that it is a thing—I am speaking for 
myself—I can not see that it is a thing that we can touch; I do not 
see that we can say to a broker what he may or may not do with this 
compensation. 

Mr. Edmonds. Are you not afraid to be followed by Pennsylvania, 
and all other States, and lead to a sort of chaotic condition? 

Mr. McGee. I do not see that it alters the real situation at all. The 
enactment of that law in New York State really accomplished little 
or nothing that had not previously been accomplished by the gen¬ 
eral law. It was intended to put a stop to what were conceivably 
improper practices, but those improper practices were indulged in 
only by a class of brokers who were temporarily in business. With 
the passing of the war-risk insurance, which had attracted them, 
those brokers have gone out, a large number of them having already 
retired, ceased to do business, ceased to trouble us. 

Mr. Edmonds. Simply the lack of desirable business led them to 
retire; it was not the law? 

Mr. McGee. It was lack of business. It was lack of what might 
perhaps be called big money, and to the insurance broker the war risk 
at one period was big money, because the rates of premiums were 
higher; the losses were high, too, but the liability that the company 
was assuming had to be measured with a big rate. Now, big rates 
mean big commissions. 

Mr. Edmonds. Very frequently some of these companies, with cor¬ 
respondents in London, were able, by advance information, to make 
money back and forth very nicely, were they not? 

Mr. McGee. I suspect that was so. I, unfortunately, was not in 
that myself. I might have attempted to participate, but we found 
no way of getting any advance information as to what was going to 
happen. 

Mr. Edmonds. We hear some of our friends have done very well in 
that line. 

Mr. McGee. I should not be surprised. 

160770—20-15 


226 


MARINE INSURANCE. 


Mr. Edmonds. I notice your association places itself on record as 
being in favor of load lines—the last part of this brief? 

Mr. McGee. Yes. 

Mr. Edmonds. I presume by that you mean, of course, in the over¬ 
ocean business. You do not mean the coastwise? 

Mr. McGee. We intended to recommend, I think, that a load line 
would be advisable not only for coastwise, not only for deep sea but 
for coastwise, but that entirely different rules or lines would be used 
for each. The present British Board of Trade’s load line is a flexible 
thing. The disk which the paint on the side of a ship when they fix 
the load line has several different marks in it. The ship may load 
to one line for one class of trade and at one season of the year; at 
another season of the year, or in another trade, she must do some¬ 
thing else. 

Mr. Edmonds. We are taking up the question of load line now 
and we meet with a very great opposition on the Pacific coast with 
these lumber ships that do not want a load line, and we met with 
some opposition on the Atlantic coast from the coastwise steamers. 
We have thought possibly if half a load line was better than none, 
that it might be a good thing to bring out a load-line regulation for 
registered ships—that is, ships that go in the overocean business— 
and it is possible we would bring out legislation along that line. 
Whether we will go into the coastwise or not, I do not know. My 
preference would be to go into all of it, but at the same time I can 
realize sometimes pressure is so great that you can not go any fur¬ 
ther than you can go. 

Mr. McGee. The difficulty, of course, is that a great many types 
of steamers, which were built for special purposes, in which it would 
be almost impossible to put on a load line that would not be a trouble 
for some other class of ships. You have got the steam schooners on 
the Pacific coast. The steam schooners were built for the carriage 
of lumber. They were constructed to carry pretty stiff jags, but they 
are built that way. There are a great many steamers, a great many 
vessels, which are absolutely unsafe unless they have got a good stiff 
deck load; they need it. But, of course, those vessels are built for a 
special trade. 

I have had, within the past two or three davs, my attention drawn 
to a case of a schooner, an old American schooner that has been sold 
to French owners, loading hard pine in Providence, I am told, and 
as I hear it she is loaded down to within 1 inch of her scuppers and 
she has a deck load they think is within a foot of the water line; the 
top of the deck load is down to 1 foot of .the water. Perhaps you 
have heard of that case. 

Mr. Edmonds. Is that the way she is loaded? 

Mr. McGee. That is the way she is loaded now. 

Mr. Edmonds. Where? 

Mr. McGee. Providence, B. I. She is ready to sail. 

Mr. Edmonds. Where is she going to? 

Mr. McGee. Going to a French port. Coupled with that is a 
rumor that- 

Mr. Edmonds (interposing). That that is not the port she is go¬ 
ing to? 



MARINE INSURANCE. 


227 


Mr. McGee. Yes; she is going to that port, but coupled with that 
is the rumor that she will lose all her deck load before she passes 
Block Island, in order to make her seaworthy. 

Mr. Edmonds. I presume there is a very great rush to insure her? 

Mr. McGee. A very great rush; yes. 

Mr. Edmonds. You can not keep these brokers away from Provi¬ 
dence ! 

Mr. McGee. The grapevine telegraph has been very active. 

Mr. Thacher. You mean only an inch freehold? 

Mr. McGee. That is the description given. That is not a very 
lucid one. She is loaded with hard pine. She is a little schooner. 

Mr. Edmonds. I am going to ask something, Mr. McGee, we have 
had in mind, and I guess you have not thought of. We passed 
what is known as the Webb-Pomerene bill, allowing combinations 
of business concerns for foreign trade without interference with the 
Sherman Act. Would it not be proper, along the same line, to allow 
those combinations in insurance, and would it not be a good thing 
for American insurance? 

Mr. McGee. I think it would be very helpful. 

Mr. Edmonds. Providing it was restricted strictly to American 
concerns. 

Mr. McGee. I think it woud be very helpful. One of the great 
difficulties and one of the great bugbears that have stood in front of 
underwriters every time any suggestion was made of getting together 
for consultations of rates has been the fact—well, it is illegal and 
you will go to jail if you do it. 

Mr. Thacher. But it is not. 

Mr. McGee. Well, they can not convince themselves that it is 
not, and we have had that urged to us a great many times, that 
it is illegal. 

Mr. Edmonds. Whether legal or illegal it could make a great deal 
of trouble for you? 

Mr. McGee. It could make a great deal of trouble. I believe, 
in a sense, it might be done under the Federal law, may not be 
illegal under the Federal law. It is probably illegal for an insurance 
company, which insures cotton in the State of Texas, to even confer 
with somebody about what rate may be made on that shipment, al¬ 
though the owner of that cotton may be in Texas and the cotton ac¬ 
tually in Mississippi. 

Mr. Edmonds. This is one of the conclusions the committee ar¬ 
rived at, that that method of honest and legitimate conduct trying to 
build up foreign trade was not an unfair proposition, provided they 
did not act unfairly to other interests, or equal interests in the busi¬ 
ness. That is one reason tvhy we have asked you a good many ques¬ 
tions along the line whether you blackball people and keep them 
out of the associations, and so on. We felt that to build up our 
foreign trade there is just as much reason for consultation and com¬ 
bination in insurance as there was for concentration and consolida¬ 
tion in steel or iron or anything else. Now, if we could revise the 
Webb-Pomerene Act, or legislation along that line, allowing com¬ 
binations between insurance companies, legitimate insurance com¬ 
panies, American insurance companies, allow them to consult to- 


228 


MARINE INSURANCE. 


gether without any danger of any question being raised as to the 
legality of it, we thought that would be helpful. Do you think that 
would be helpful? 

Mr. McGee. I do not know whether that would override State 
laws or not. 

Mr. Edmonds. Let me tell you this, that it has been decided by 
Justice Hughes, of the Supreme Court, that the marine law is national 
law. Is that not right, Doctor? 

Dr. Huebner. It would seem to indicate that; yes, sir. 

Mr. Edmonds. It may not be, but of course I am not a lawyer, 
but the statement has been made to me that that is the case. 

Dr. Huebner. Thames v. Mersey. 

Mr. Edmonds. It was decided the marine law was a national mat¬ 
ter. Is that not right, Mr. Thacher? 

Mr. Thacher. In the case of The Thames v. Mersey case (237 
U. S.). 

Mr. Edmonds. Was that the decision? Do I state it right? 

Mr. Thacher. I would not attempt to state especially for the pur¬ 
pose of this committee exactly what that case decides. It decides th 3 
question whether the Federal Government has the right to regulate 
interstate commerce. It is as to taxation by indirection on exports in 
interstate commerce. 

Mr. Edmonds. What do you think of allowing that power in in¬ 
surance by an extension of the Webb-Pomerene Act to cover marine 
insurance, or an act similar to it? 

Mr. Thacher. A great deal depends on the act, whether by such a 
method you would control economically the flow of international 
trade with insurance. 

Mr. Edmonds. The question would only be that American insur¬ 
ance companies could pool together in such a way as to consider rates 
and to consider a natural defense. 

Mr. Thacher. With the exception of some State laws to-day they 
can do it now. 

Mr. Edmonds. That, of course, is true, but it is not done because 
of the fear of the probability that they may overstep the law and 
come in for a rigging, if they do not get anything else. 

Mr. Thacher. I think it is also true that marine insurance is freer 
from competition than ever existed in any form of business or in¬ 
surance in the world, and I speak from an experience of 20 years. 

Mr. Edmonds. Of course, we have got another law that we have 
been looking at that I might suggest to you. We have got an anti¬ 
dumping law, which does not allow the sale of goods in this country 
for a less price than they are sold in their home country. Does that 
cover insurance? 

Mr. Thacher. Insurance does not come under it. 

Mr. Edmonds. It might cover it. 

Mr. Thacher. A declaration by Congress that insurance was a 
commodity. A mere statement that it is a commodity does not make 
it such. 

Mr. Edmonds. Of course I am not an attorney—I have to ask 
these questions. I do not know. We have had the matter under con¬ 
sideration. Of course, the Webb-Pomerene Act, allowing the joining 
together of these companies to take care of foreign business, which 
would be virtually all of the overseas business, might remove a good 


MARINE INSURANCE. 


229 


deal of the fear of oversteepping the mark and making themselves 
liable under the Sherman Act, and might encourage the companies 
to get together. I do not know whether it would be a good thing 
or not. That is one of the things we have had under consideration, 
and we have been looking at the antidumping clause. With you I 
am not quite sure that any clause like that, without being entirely 
reorganized or reframed, could affect the insurance situation. 

Mr. McGee. There is no doubt that anything which would permit 
the American companies to get together and adopt some one united 
course, 1 think that would be very helpful. There is no doubt about 
it. The American companies have been handicapped, always have 
been handicapped by the fact that so many of the foreign companies 
that have been here have sister companies, and such, in their own home 
countries, and therefore when they write a risk in this country they 
can write a tremendously large line. One of the earliest things that 
put the American marine insurance companies into trouble was the 
fact that so many of the foreign companies, when the risk was 
offered to them, instead of taking that part of the risk which they 
were asked to carry would say, “I want all of it or none of it.” 
Now, the practice has been that if there is a large risk the broker 
went from company to company and gave to each one that part of 
the risk which he wanted. If he came to me and I wanted $20,000 
of it he gave me $20,000; he would go to my neighbor and give him 
what he wanted; but several groups of foreign companies adopted 
the practice of saying, “ Well, if you do not give me all of that risk 
I will not take any,” and Mr. Broker may have needed that further 
share of it. Now, such a thing as you suggest in the Webb-Pomerene 
Act, perhaps, would put American companies in position to unite to 
meet conditions of that kind. I am not sure that it would, but that 
is my first impression. 

Mr. Edmonds. We are considering that at the present time, and 
we would like to have your views on that subject. 

Another thing, which, of course, would be more or less affected by 
the State laws,, is the desirability of permitting fire and marine in¬ 
surance companies to transact other types of insurance. It appears 
the English insurance companies take virtually any kind of insurance 
they want ? 

]Vfr. McGee. Yes; practically. 

Mr. Edmonds. In some of the cases they even write life insurance. 
And over here the companies seem to be limited to certain lines. 
Would not the companies be better off if they were allowed by the 
States to increase their lines ? 

Mr. McGee. I think there is no doubt that they would. A marine 
insurance company, a company which is licensed to do a marine in¬ 
surance business, frequently finds itself confronted with insurances 
which are perfectly legal in England, and transacted by a marine 
insurance company, which we can not do here. Take the matter of 
builders’ risk insurances. The forms which were in early use by 
the British companies covered loss of life and personal injury from 
various causes. That is, if a vessel under construction meets with 
certain classes of accidents and there is a resulting loss of life or 
personal injury, it would be covered under that marine policy. That 
would be an illegal thing for an American marine insurance com- 


230 


MARINE INSURANCE. 


pany or a fire insurance company in the great majority of the 
States. 

Mr. Edmonds. It seems to me that all forms of insurance, except, 
possibly, life insurance, could be very well amalgamated in a com¬ 
pany without any particular conflict. Some companies do write, I 
suppose, more lines than others ? 

Mr. McGee. Yes. 

Mr. Edmonds. They are allowed to under their charters? 

Mr. McGee. Yes, sir. It is a distinct advantage to any insurance 
company to be able to write a variety of lines of business. It has been 
the experience of one of the companies that I have been connected 
with for a number of years that in the years when the fire insurance 
went bad the marine insurance showed them a profit. The result was 
that on the year’s business they came out satisfactorily. The years 
in which the marine insurance went bad, the fire insurance went good. 

Mr. Edmonds. Is the policy of the State laws, generally, now, to 
restrict a company to one or two lines ? 

Mr. McGee. Yes; under the laws of most of the States. Take New 
York State, for instance: A company which does a fire insurance 
business may do a marine business, but it may not do anything else 
but those two. Up to a very recent period New York State only 
permitted a company to do either fire or marine; it could not do 
both. There were some exceptions to that, but those were companies 
that were transacting business in that State before the law was en¬ 
acted. 

Mr. Edmonds. Is that the reason why the fire insurance companies 
have tacked on the automobile business and everything else, and 
called it inland insurance? 

Mr. McGee. No; the reason why automobile insurance is called 
inland insurance and classed as marine insurance is this: When auto¬ 
mobiles first began to be used the fire insurance companies were afraid 
of them; it was doubtful whether they could write a risk of that kind, 
but the marine insurance companies could, because they were classed 
as transportation, or else moving by power; and it was the marine 
insurance companies that first tacked on the writing of automobile 
insurance. It was taken on a little bit, experimentally, and it grew, 
I think Mr. Hedge is the man who can answer that question better 
than any other man I know of. Fire insurance companies afterwards 
acquired the right to transact it, but it has always remained classed 
as marine insurance. 

Mr. Edmonds. Here is another thing I have in mind: When the 
Shipping Board was organized, supervision over marine insurance 
was given to the Shipping Board to prevent any injustices—not any 
regulatory power, but a supervisory power. This is a question in 
connection with the Shipping Board’s supervision. Is it desirable 
to require a periodic statement of rates, agreements, amalgamations, 
and community of interest between marine insurance companies, 
both domestic and foreign, as regards our market? Would that 
tend to disseminate information and improve the business? 

Mr. McGee. If they were required to make reports to the Shipping 
Board ? 

Mr. Edmonds. If they were required to make reports to the Ship¬ 
ping Board of rates, agreements, amalgamations, and community of 
interest. 


MARINE INSURANCE. 


231 


Mr. McGee. I am afraid it would be harmful, for this reason: The 
insurance company in a foreign country would have those records 
available. 

Mr. Edmonds. It is not necessity that they should be published, 
you know. 

Mr. McGee. No; that is quite true; but somehow or other things 
that are not published do get out, and they do get, by various chan¬ 
nels, into place where they do the most harm. The result, as I see 
it on my first thought, is just this: That a company which is not 
domiciled in the country would have before it a price catalogue 
which it could cut on such parts of the business as it might desire to 
attract. 

Mr. Edmonds. This proposition, advanced after due consideration 
by the committee, says that— 

These agreements, amalgamations, or community of interests, need not be 
made public, but should be known to the Government in the sense that some 
duly constituted authority should be aware of what is transpiring with a view 
to eliminating any practices which are inimical to the interests of this Nation. 

For some years foreign companies, particularly British companies, have been 
organizing and purchasing other companies already organized under American 
laws, which they operate as companies of the United States. This is done with 
many of the home offices, the use of which is permitted by British law, although 
the similar use of funds is practically forbidden to American companies by the 
laws of many States. Such function and interlocking is fostered by the business 
of Great Britain. They can not use the funds of their American branches for 
this purpose, but they borrow the money here or send it over and so have gradu¬ 
ally been increasing and strengthening their hold upon American fire and gen¬ 
eral insurance. Thus far the facts collected by the committee indicate that 
seven so-called American companies transacting marine insurance are controlled 
by British companies through ownership; four other American companies seem 
to be so closely allied as to clearly indicate a sympathetic relation with foreign 
interests; five other companies controlled by foreign interests do an inland 
business which is not strictly of the marine insurance variety, although said 
companies are available for the transaction of marine insurance; two other 
American companies, recently created, and permitted to write marine insurance 
by their charters are controlled by foreign companies; and three other American 
companies have foreign connections, although the data available is not sufficient 
to show that they are actually controlled. 

Now, there is a situation that, if we desire more marine insurance 
to be written in America, would require somebody to keep a finger on 
it, because it is evidently growing. So we have here the question of 
the desirability of having some authority—just the same as we are 
doing in the shipping, exactly—that will say, “ These agreements are 
contrary to public policy and you will have to stop them,” or, “ This 
agreement is all right and you can go ahead with it.” As I say, it is 
not necessary to have publication of these documents in any way, 
shape, or form. It would mean that the party who had charge would 
send for you and he would say to you, “ That agreement of yours is 
all right in this case, but in that case you had better stop it; that is 
not good policy.” 

Would that be an advisable thing? 

Mr. McGee. My first impression is that it would not, and for this 
reason: Those agreements would probably be passed upon by some 
one who in all probability would have only a smattering of knowl¬ 
edge of marine insurance business. 

Sir. Edmonds. Suppose we saw that one member of the Shipping 
Board was a good marine insurance man, and made him the au¬ 
thority ? 


232 


MARINE INSURANCE. 


Mr. McGee. That would be a good thing. But the great trouble, as 
I see it, would be that while it might start right, and start under 
proper management, administrations do change, and insurance com¬ 
panies go on forever, more or less, and the first thing we know some¬ 
thing which is desirable and well managed finally slips into hands 
that might create so much trouble—it might; I do not say it would— 
it might create so much trouble for the insurance companies that it 
would be exceedingly burdensome. 

Mr. Thacher. Mr. Chairman, I do not want to interrupt, but the 
question that you just put is a very interesting one, of fundamental 
importance, and I suggest that if the committee would state those 
thoughts and give time for the witnesses to turn them over and give 
them careful thought, rather than ask any man, however skillful, 
to express an opinion on such an important subject, it would be 
only worthy of the topic and worthy of its importance. Very few 
men can express an offhand opinion of value on such a fundamentally 
important subject. Even a trained man would need time to reflect 
on a subject like that. 

Mr. Edmonds. Yes, I think that is true. We have been talking it 
over for some time, and these ideas are the ideas that we have 
boiled down out of our general thought. Whether any member of 
the committee has spoken of it to anybody or not, I do not know. 
I know I have not. 

Mr. McGee. It is news to me. 

Mr. Edmonds. Going further into that, it says: 

The records of all our States deal only with general totals, and these figures 
are largely valueless since they include various forms of inland insurance, 
such as motor vehicle, tourist baggage, registered mail insurance, etc. In the 
present investigation the data for these various classes of insurance could be 
separated only with extreme difficulty and, in large part, only through corre¬ 
spondence. It was only through correspondence that one could even ascertain 
the number of American and foreign marine insurance companies transacting 
marine insurance in the United States. 

Mr. McGee. The National Association of Insurance Commission¬ 
ers have adopted a new blank for reporting the figures, which I be¬ 
lieve beginning with the business of 1920 will segregate premiums, 
losses and such things in the various lines of business separately; so 
that I am inclined to think that beginning with the business of 1920 
the facts will be shown with greater accuracy. 

Mr. Edmonds. (Continuing:) 

No public records exist anywhere in the United States which differentiate 
the volume of marine business into hull and freight, cargo, and builders’ risk 
insurance, or which show the volume of marine insurance in the foreign trade 
as distinguished from the coastwise trade. This information had to be ob¬ 
tained through the committee’s questionnaire. 

No public records exist to show the distribution of reinsurance among do¬ 
mestic and foreign companies. No public records indicate the volume of rein¬ 
surance placed with foreign companies. 

No public records indicate the amount of American marine insurance ex¬ 
ported abroad. 

No public records indicate the amount of American marine insurance re¬ 
insured by American companies, or by admitted foreign companies, with non- 
admitted foreign companies. 

No public records indicate the amount of marine insurance originating abroad 
and reinsured by foreign companies in American companies. 


MARINE INSURANCE. 


233 


In London, we are advised that that the details of the marine insurance 
business are trade secrets, reports, if any, being made in confidence subject 
to test by a committee of the Board of Trade and by audit of Lloyd’s. Thus 
their volume is a business secret in the keeping of business committees, and 
combined balances only are made public. For similar reasons there is an 
absence of analytical reports of the insurance of most other nationals. 

That is a question that I would be glad if you gentlemen would 
think over. We are trying to give you some of the thoughts that 
come to us along that line. This committee went through the mer¬ 
chant marine investigation six years ago and we had very much 
the same condition to meet, and that is probably one reason why we 
have been able to gather our information a little more easily this 
time than we did before. We found that a condition existed between 
the ships, almost identical in every way with that existing to-day 
between the marine insurance men. 

Mr. McGee. I think it is quite true that the individual who is 
nearest to a problem frequently absolutely overlooks the real 
answer to his trouble. Marine insurance is a very confining busi¬ 
ness and it is a technical business, and I think there is no doubt that 
we miss a great many tricks through the fact that we have our eyes 
so close to it, and that gentlemen like yourselves, who attempt to look 
on and watch the movements on the chessboard, can see lots of moves 
that the players miss. 

Mr. Edmonds. As I told you this morning, what we want to do is 
to be helpful. W 7 e do not want you gentlemen to come down here 
and say, “ We can’t be helped; ” because we are satisfied that you can 
be helped, and we are satisfied that you have the brains between you 
to help yourselves. Now let us all get together and see if we can not 
pull together and have 60 ppr cent of the business done in this 
country and 40 per cent outside, instead of having 30 per cent done 
here and TO per cent outside. 

Mr. McGee. That is highly desirable from our point of view. 

The great trouble with the underwriters, fire and marine, I believe 
arises from the fact that they have had so many difficulties with in¬ 
surance departments all over the country, with insurance commis¬ 
sioners who have taken rather radical points of view, that I think 
a great many of the fire underwriters as well as marine underwriters 
are what you might call “ buffaloed.” I know that the one thing 
that I have to meet with the heads of some of the companies that I 
represent is the absolute fear that we may do something which the 
insurance cimmissioner of some State might take exception to; be¬ 
cause if we run counter to Mr. Insurance Commissioner he may 
throw the company out of the State for a valuable fire business as 
well as a valuable marine. I think that is a very potent cause of fear; 
I know it. We are all afraid of doing something which is going to 
cause our companies to be put out of some State where they may 
have a valuable business. 

Mr. Edmonds. Would not supervision along the line that I spoke 
to you about, by the National Government, assist you with those 
people ? 


234 


MARINE INSURANCE. 


Mr. McGee. My first thought is that it would. It sounds very 
reasonable to me; but I would like to have the privilege of turning 
it over in my mind to see what I can make out of it. 

Mr. Edmonds. A condition such as that in 1916, where $140,000,000 
or $150,000,000 worth of fire insurance premiums were sent out of 
the country, is not a helpful condition. It is a reflection on the 
ability of our business men; and I should say that we ought to get to¬ 
gether, particularly now that we are supposed to be the creditor 
Nation of the world, and see that that condition does not exist. As 
long as England was the creditor Nation of the world it probably 
could not be helped; but now that conditions have changed we ought 
to be ready to change along with them. 

Mr. McGee. I think it is something like five years ago that I 
went to the officials of one of the largest of the American banks 
and asked them to undertake for our companies some classes of- 
business which we had had to transact through British banks for a 
great many years, and it took me nearly four years to convince that 
bank that it was something that they ought to do; if they did not 
do it because of the money that they might make out of it, they 
should do it because of their duty to American commerce and to 
American marine insurance companies. And I am glad to say that 
within the past year or two they have done it, and they are taking 
it up. That is the matter of paying claims for American marine 
insurance companies in foreign countries. We have to pay our 
claims there; we have to pay them to the consignee at the place 
of destination of the goods that we insure. British banks were 
doing that work for us, and doing it very satisfactorily, and doing 
it at very moderate charges; and yet it took me four years, nearly. 

Mr. Edmonds. That was occasioned' by the fact that the banks did 
not have their branches; to-day they have? 

Mr. McGee. They had them. They had their correspondents. 

Mr. Edmonds. I saw the list of the correspondents published re¬ 
cently, and it shows that we are fairly well covered all over the 
world to-day, by one institution or the other. It shows that we 
have extended the banking system and that the bankers are alive to 
the present situation. Now, it is up to the rest of the business of 
the country to get alive to the situation just as much as the bankers 
hava; and I think it does not require very much more than calling 
it to the attention o*f the American people, to let them once get in 
the right track, and I think this concentration of facts and figures 
that we have brought forth here will assist in that. We could make 
that very much more more explicit, of course, and we will make it 
more explicit as we go along; and it will assist in bringing to you 
gentlemen’s attention the fact that we should have, and we all 
ought to get together and see that we do have, the proper facilities 
for doing our proper share of our marine insurance, 

Mr. McGee. I am very much interested in the statement of the 
results of the questionnaire this morning. It was exceedingly inter¬ 
esting, and there was a good deal in it that was quite surprising 
to me. 

Of course, what is being sent out of the country, I anticipate, is 
the excess reinsurance over surplus lines, and I doubt that it would 


MARINE INSURANCE. 


235 


be possible to get tliat into the hands of American insurance com¬ 
panies, even if we were to form such things as the burlap pool and 
the cotton pool. 

Mr. Edmonds. Would you not be able to do it if you had 20 or 30 
or 40 more good strong American companies ? 

Mr. McGee. No; because they would all find themselves in the 
same position of having surplus business which would come to their 
attention so long after the sailing of the vessel. It must be auto¬ 
matically protected. 

To get back again to an illustration which I used earlier in the 
afternoon: We insure goods through agencies in Buffalo, Detroit, 
Cleveland, Omaha, Kansas City, and so on all over the country. 
Those shipments, when they originate in those places, are coming by 
railroad, and there is no knowledge of when they are going to reach 
the seaboard, nor the name of the steamer in which the shipments 
go. The result is that we frequently get large accumulations which 
must be automatically reinsured. We must have contracts which 
automatical^ take our surplus lines. 

Now, an American company which is also doing business in the 
same direction could not afford that same kind of contract. It must 
be placed with somebody who is not getting that class of business, 
and very frequently we are able to exchange business with the 
foreign country. That is to say, if a company in Paris, for instance, 
will reinsure a share of our surplus lines, we will reinsure a share 
of theirs. We swap with them something that they do not get, and 
we get in return something that we do not get. Our friends in the 
American market would all find themselves with surplus lines, or 
likely to have surplus lines, on the very same steamers that we have. 
They could not give us such treaties unless that company confined 
itself to a reinsurance business. Now, besides fostering direct- 
writing American insurance companies, if it were possible to foster 
reinsurance companies, making it an advantage to a company to 
write a reinsurance business and confine itself to that, in that way we 
could build up the capacity of this market far better than we could 
if we were to confine ourselves to direct-writing marine insurance 
companies. Have I made that clear? 

Mr. Edmonds. Yes. Have we not quite a few marine reinsurance 
companies here ? 

Mr. McGee. No American marine reinsurance companies. 

Mr. Edmonds. What is the Rossia ? 

Mr. McGee, The Rossia is a Russian company. 

Mr. Edmonds. It has just recently been incorporated under the laws 
of Connecticut, has it not? 

Mr. McGee. Yes; but it is the original Rossia. 

Mr. Edmonds. The Rossia company seems to have been exceedingly 
successful. 

Mr. McGee. Yes; I know them quite well. They are splendid 
people. 

Mr. Edmonds. Would not a number of reinsurance companies of 
that kind be profitable in this country? 

Mr. McGee. Yes. That is exactly my point. 

Mr. Edmonds. Why do they not form them ? 


236 


MARINE INSUKANCE. 


Mr. McGee. Because they do not know the business. It is a busi¬ 
ness which is different from a direct-writing business, and I think 
that the laws of a great many of the States bear heavily upon a rein¬ 
surance company, rather more than they do upon a direct-writing 
company. Then another thing: The great reinsurance writers of the 
world have been the German companies. They have specialized— 
German, Russian, and other continental countries. Now there is an 
inclination, I believe, amongst Americans to form reinsurance com¬ 
panies, but they are groping. They do not know the way, and they 
must grope until they find the way to do that business successfully. 

Mr. Edmonds. A District of Columbia charter that would allow T the 
formation of reinsurance companies, liberally, would be a very good 
place to establish reinsurance companies, would it not?. 

Mr. McGee. I am rather inclined to think it would; just as a char¬ 
ter under the District of Columbia might be very excellent for Ameri¬ 
can companies that want to do an international business. That is to 
say, a group of American companies might be permitted to form an 
insurance company which they in turn would own, but through which 
they would operate in foreign countries. I think perhaps that might 
get around the disabilities that a great many companies now suffer 
under through the State laws. For instance, any deposit which an 
American marine insurance company has to make in a foreign coun¬ 
try is literally taken out of the American assets of that company. 
They lose all benefit of it. It is not merely that they take $500,000 
out of that company’s funds, but under the laws of a great many States 
its underwriting capacity in the United States is reduced just so 
much. So the model law T for the District of Columbia has a great 
many possibilities in it. 

Mr. Edmonds. We noted in the answers to the questionnaires that 
the companies seemed to form themselves into groups, in each of 
which there were either interlocking directorates or there was a 
finance company that controlled the stock—virtually the same direc¬ 
torates. They seemed to run into groups of three or four. What is 
the reason for that ? 

Mr. McGee. Are you speaking of American companies? 

Mr. Edmonds. Yes. 

Mr. McGee. There are a number of cases of that kind where one 
company has built up a large business and has about reached the 
limit of its possibilities as to volume of business, where by forming 
a new company they could put that company into entirely different 
territory and procure an additional amount of business." Perhaps 
I can answer that in another way. Company A might have a very 
important general agency in New York City, from which it was 
drawing a very large volume of business. If it increased its ca¬ 
pacity, that general agency, it would not produce enough business 
to warrant it. Now, by forming a sister company, or by acquiring 
a company which can become a sister company,.they can plant that 
sister company in the same territory and draw just about as much 
more income out of it as they have in the original company. 

Mr. Edmonds. From another agency? 

Mr. McGee. From another agency; and that sister company’s 
business would carry itself better than if they put that additional 


MARINE INSURANCE. 


237 


capital into the original company. If the original company’s capital 
was $4,000,000 and they increased it to $5,000,000, the additional 
business that they would get probably would not warrant that in¬ 
crease. On the other hand, if they took that million dollars and 
formed an entirely new company under the same general manage¬ 
ment, they would probably get three or four times the volume of 
business that they would have gotten through the increase in the 
capital of the original company. 

Mr. Edmonds. It seemed that all of the companies doing a marine 
insurance business—and possibly that may be true of fire, too- 

Mr. McGee. I was speaking more of fire than marine. I do not 
think it is true of marine. 

Mr. Edmonds. It is both. They seem to have gravitated into a 
position where three or four companies would be formed into a 
group, with either a finance company controlling all their stock or 
with interlocking directorates handling the whole business, and I 
was wondering what really made that. I should imagine that what 
you say is pretty nearly right; that State conditions, one company 
handling a line that is allowed in certain States where another com¬ 
pany could not, and things of that kind, probably have brought 
them to increasing their capitalization in that manner. 

Mr. Thacher. Is there any group of companies in the marine 
field where a finance company controls the stock? 

Dr. Huebner. Yes; there are several where they have a security 
company or an investment company. 

Mr. Thacher. Then they are not primarily marine? 

Dr. Huebner. Yes; there are five that confine themselves to ma¬ 
rine insurance. 

Mr. McGee. You are speaking of companies that are controlled 
by foreign capital? 

Dr. Huebner. No. 

Mr. McGee. There is an interesting situation there. 

Dr. Huebner. American fire and marine companies in quite a 
number of instances are in groups, where the control is in the hands 
of a securities company of one kind or another. 

Mr. Hedge. Mr. Chairman, if you will allow me, I think I can 
throw some light on this point. There are certain States that do not 
allow, by their law, one insurance company to own stock in another 
insurance company, and in order to comply with the laws in those 
States where they really own stock in another company they have 
transferred it over to security companies, the stock of which they in 
turn own. It is beating the devil around the stump. 

(After informal discussion off the record:) 

Mr. Edmonds. Is there anything more you want to say, Mr. 
McGee ? 

Mr. McGee. Nothing more, sir. 

Mr. Edmonds. We are very much obliged to you for coming down 
again. 

(Thereupon, at 5.05 o’clock p. m., an adjournment was taken until 
to-morrow, Friday, September 26,1919, at 10 o’clock a. m.) 



238 


MARINE INSURANCE. 


Washington, D. C., Friday , September 26, 1919. 

The subcommittee met at 10 o’clock a. m. Hon. George W. Ed¬ 
monds, presiding. 

Mr. Edmonds. The first witness this morning will be Mr. Evans, 
as was agreed on last night. 

TESTIMONY OF MR. HENRY EVANS, OF NEW YORK, PRESIDENT 

OF THE CONTINENTAL INSURANCE CO., THE FIDELTY-PHENIX 

FIRE INSURANCE CO., AND THE AMERICAN EAGLE FIRE INSUR¬ 
ANCE CO. 

(The witness was duly sworn by Mr. Edmonds.) 

Mr. Edmonds. Will you kindly give the stenographer your name, 
Mr. Evans, and your insurance affiliations? 

Mr. Evans. My name is Henry Evans. I am president of the Con¬ 
tinental Insurance Co., the Fidelity-Phenix Fire Insurance Co., and 
the American Eagle Fire Insurance Co. 

Mr. Edmonds. Also, give the names of the companies that are 
parties to your marine department, Mr. Evans. 

Mr. Evans. I can not tell you all of them. Those three companies, 
the American of Newark, the American Eagle, the Continental, the 
Fidelty-Phenix, the Glens Falls, the Hanover, and the Firemen’s 
of Newark. 

Mr. Edmonds. They also represent the Globe, don’t they, and the 
Rutgers ? 

Mr. Evans. No, sir. 

Mr. Edmonds. The Globe company and the Rutgers ? 

Mr. Edmonds. The Globe-Rutgers is one company and they are 
not in our office. 

Mr. Edmonds. Are these companies all strictly American com¬ 
panies, Mr. Evans? 

Mr. Evans. They are, sir. 

Mr. Edmonds. There is no interlocking with foreign companies 
at all? 

Mr. Evans. No. 

Mr. Edmonds. Officers and stockholders all Americans, I presume? 

Mr. Evans. Of course, I can not speak for the stockholders. 

Mr. Edmonds. The officers are, I presume? 

Mr. Evans. Yes. 

Mr. Edmonds. And of course you can not speak for the stock¬ 
holders ? 

Mr. Evans. No. 

Mr. Edmonds. Do you want to make a statement, Mr. Evans? You 
know, of course, what we are trying to do is to improve the condi¬ 
tion of the marine insurance so we can have more of the insurance 
written in this country. 

Mr. Evans. Yes. 

Mr. Edmonds. I was very much interested in a little pamphlet you 
wrote a little time ago, and I see you have it in your hand there, and 
I would be very glad indeed if you would make some statement to 
us this morning as to your opinion of the marine insurance situation 
and what can be done to benefit it. 

Mr. Chindblom. The American business. 


MARINE INSURANCE. 


239 


Mr. Evans. I want to start out, first, by saying I am not a marine 
underwriter, and I think I can safely state there are comparatively 
few marine underwriters in the United States. The business is, I 
believe, very largely controlled by British interests, and, having that 
belief, I made the statement to Mr. Vanderlip, when he was presi¬ 
dent of the National City Bank of New York—he was in my office 
one day, and he said that his object in life from that time on was to 
help the United States become a world trader, and I made the state¬ 
ment, “Well, you have got to go into the insurance business.” He 
wanted to know what I meant, and I explained to him, basing my 
opinion upon the success the English had had, that it was necessary 
to couple banking, insurance, and shipping together, in order to 
compete in the world-trade business. He asked me then, after some 
talk, if 1 would put down in writing what I had said, and when I 
undertook to dictate it I found it a little bigger subject than I thought 
it was in talking. So I finally got it in this pamphlet form, which 
was issued two years ago this next month, I think, or in November. 
That is merely an expression of opinion based on such facts as had 
been brought to my attention as a fire underwriter. I believe that the 
opinions expressed are correct, because some 40,000 copies of that 
pamphlet have been distributed. The first 10,000 were sent out, and 
after that they were sent broadcast all over the world; that is, to 
France, England, and Germany, and wherever there were insurance 
interests, to all the papers, and to all the companies. There has never 
been, that I have seen, any criticism of the facts as stated. The 
British papers said that I viewed the subject from the standpoint of 
American interests, but they never tried to refute any of the state¬ 
ments made. I do not think that the statements are very specific, per¬ 
haps, or that they lead to other than a thought that might result in 
some action by the people in this country. I did not pretend much in 
it outside of that—a suggestion. 

Now, I do not know how you can break the grip that the foreign 
companies have on American business except that you can perhaps 
build up a spirit of patriotism in this country such as exists in Eng¬ 
land. The British merchant does business with his own companies; 
that is, with British companies, to the exclusion of all other com¬ 
panies, practically. In this country our merchant will take any 
policy that the agent gives him. He does not know much about it and 
he does not have very much to say. 

Mr. Lazaro. Does the British business men do that on the ground 
of patriotism, or because he gets rates over there that lead him to 
do it? 

Mr. Evans. I think he would do it as a matter of patriotism and 
facilities, both. I think they extend better facilities than we have 
up to this time extended. I do not believe that is true as regards 
business generally, but it certainly is true as regards the marine 
business, because this country has practically no marine companies. 

A number of fire companies have gone into the marine business 
since the war began, but before that the Insurance Company of North 
America, the Atlantic Mutual, the Federal, and the Boston Co. (Mr. 
Hedge’s company), I think did the bulk of the business done in 
this country. As I say, I do not know very much about the marine 
business. 


240 


MARINE INSURANCE. 


It is possible, further, that by a system of license, such as exists 
in the fire business, you-may get not an absolute control of the situa¬ 
tion but a deterring control that will help to hold the business in 
this country. I do not. know how you are going to prevent a man 
dealing direct, the broker telling him, “Well, I can not place this; 
you can send it abroad through such and such a party and get your 
insurance direct,” and then he getting the commission on that. But 
the average man won’t do that, and the average broker does not 
want to tell him to do it, because it is teaching him how to do his 
business direct and save the commission at this end. That has been 
the effect in the fire business. 

Mr. Chindblom. Would he save the commission? 

Mr. Evans. He might if he broke away from his broker, if he 
severed his connection and placed it direct, the broker having taught 
him how to do it. 

Mr. Chindblom. Do you think the marine insurance company 
might give the owner of the vessel the benefit of the commission? 

Mr. Evans. There is no reason why they should not. 

Mr. Chindblom. By way of comparison, before you leave the sub¬ 
ject, let me ask whether the American fire insurance companies do 
any appreciable business abroad? 

Mr. Evans. No. 

Mr. Chindblom. I presume that our fire insurance business com¬ 
pares very favorably with any business anywhere in the world, does 
it not ? 

Mr. Evans. What is that? 

Mr. Chindblom. I say I presume our fire insurance business in 
this country compares favorably with any business in the world? 

Mr. Evans. Oh, yes. This is the greatest insurance field there is 
in the world. 

Mr. Chindblom. So I understand. And notwithstanding that, Ave 
have not broken into the foreign field much, have we? 

Mr. Evans. No; for two reasons: First, because the laws of this 
country are so restrictive it has been about all the American com¬ 
panies could do to take care of their liabilities in the United States, 
and the field has been so fertile that the cultivation of this field 
has brought better results than any possible cultivation of the Euro¬ 
pean field. The European companies are well entrenched and it 
means a fight, probably, to get their business. Several companies 
have tried in the past to do business direct in England and they 
have not succeeded in getting it and have given it up. 

Mr. Chindblom. On the other hand, foreign companies do a lot 
of fire insurance business here, do they not? 

Mr. Evans. I think that GO per cent of the premiums in the leading 
British companies are taken from the United States. 

Mr. Edmonds. In fire, or fire and marine both? You mean just 
generally? 

Mr. Evans. Their entire premiums; their entire fire and marine 
business. 

Mr. Edmonds. Of course a great deal of that would be marine 
business ? 

Mr. Evans. Well, the marine business is not as large, you know, as 
the fire business. 


MARINE INSURANCE. 


241 


Mr. Chindblom. Would more than half of that be marine business? 

Mr. Evans. Oh, no. 

Mr. Edmonds. Mr. Evans, we had quite a discussion here yesterday 
on the reasons why we lost all our hull insurance and also about the 
builder’s risk insurance. Your companies write both hull and build ¬ 
er’s risk? 

Mr. Evans. Yes. 

Mr. Edmonds. Are you doing much hull business now? 

Mr. Evans. No. 

Mr. Edmonds. It was stated here yesterday that while the British 
had advanced their rates on hulls three separate times recently, they 
have not advanced their rates on American hulls at all. Do you know 
whether that is correct? 

Mr. Evans. I only know from hearsay, and I have been told that 
is the case. 

Mr. Edmonds. That is the reason, of course, they are getting our 
hull insurance and amortizing the losses on that by charging more 
to their own ships? 

Mr. Evans. Yes. 

Mr. Edmonds. It is rather a peculiar situation. I presume they 
intend to make it up at a later date. 

Mr. Evans. They probably want to drive the American fire com¬ 
panies that have gone into the marine business out of the field, and I 
think they will have some success in it. 

Mr. Edmonds. I imagine that is true from looking at the results 
in these questionnaires. I should say that even if the American did 
want to insure in an American insurance company, he would have to 
go hunt a bit. Some of these companies have such close affiliations 
with the English companies and reinsure so much with the English 
companies that a goodly proportion anyhow becomes meat for the 
English insurance companies? 

Mr. Evans. Yes. As much as 90 per cent, I am told, or 92 per cent , 
of the reinsurance. 

Mr. Edmonds. Yes; and some of that, from 60 to 70 per cent of it, 
in English companies. 

Mr. Evans. Yes. 

Mr. Edmonds. I did not want to interrupt you. Would you like to 
put that pamphlet of yours in our hearing? 

Mr. Evans. If you want we to, sir. 

Mr. Edmonds. Would you like to put a part of it or all of it in? 

Mr. Chindblom. Before you answer that- question, let me ask is 
there anything in that pamphlet which might require revision to 
bring it down to date, or is it of such a character that it would be of 
general interest and importance now? 

Mr. Evans. I think it would be now. 

Mr. Chindblom. Without change? 

Mr. Evans. It bears merely upon a situation, not so much upon 
specific conditions at any particular time. My effort was to point 
out the fact that our marine insurance was controlled by foreign com¬ 
panies and that there was no reason for it, because there was plenty of 
capital here, and that we could not succeed in building up a world 
trade unless we had our own insurance companies. 

160770—20 - 16 


242 


MARINE INSURANCE. 


Mr. Chindblom. Mr. Chairman, in view of the apparent popularity 
of this document, I would suggest that we have it put into the 
hearing. 

Mr. Edmonds. I would think so. It gives it wide publicity, and 
I have no doubt but that it would be of interest to people who read 
the hearings. 

Mr. Chindblom. I much regret that I am not familiar with it. 

Mr. Edmonds. I am not familiar with it all. I started to read it 
on the railroad train the other day going home and before I got 
through somebody interrupted me and I could not finish it. 

(The pamphlet referred to is as follows:) 

The Vital Relation of Instjeance to Banking and Shipping in the Woeld’s 
Teade Aftee the Wae—Amebica Foee. 

(Addressed to bankers, capitalists, shippers, and producers of trade commodities.) 

(Submitted by Henry Evans, president American Eagle Fire Insurance Co., Continental 

Fire Insurance Co., Fidelity-Phenix. Fire Insurance Co., 80 Maiden Lane, New York 

City.] 

The matter herein presented is, in its whole aspect, the future of world’s trade 
at the conclusion of this war, from the standpoint of insurance opportunities. 
At that time the United States will probably be the largest creditor nation, pos¬ 
sessing dhe greatest resources in immediate sight for conversion and realization, 
and for the first time in more than half a century will have in hand a merchant 
shipping sufficiently large to enable American business interest to carry in its 
own bottoms much of the vast commerce that will be immediately released for 
the rehabilitation of the exhausted nations. 

The economic proposition at the base of the foreign trade of every nation is 
the union of banking, shipping, and insurance strength. In the absence of any 
one of the three the other two factors will be exposed to weakness that will 
inevitably bring waste or loss, if not failure. Great Britain has commanded the 
foreign trade of the world because she has financed it herself, carried it herself, 
and protected both its credit and its losses by insuring every dollar of her own 
trade, when possible, with her own insurance. Germany, before the war began, 
was enormously extending her foreign commerce by exactly the same means. 
Behind German banking, shipping, and insurance stood the whole financial 
power of the Imperial Goverment. In Great Britain it is the other way around. 
There the great banking, shipping, and insurance interests in every trading port 
of the world stand behind the government at home. Japan, which is taking ad¬ 
vantage of the war to enlarge her commerce, is following the German plan, with 
her insurance facilities not yet fully provided, but depending largely for them 
on her British ally, although a great share of it comes to America, if it is 
American business. 

The above are facts, not suggestions. It is not the purpose to present argu¬ 
ments herein so much as to set down facts which will yield their own sugges¬ 
tions for consideration and suggestions which may develop into facts. 

Chief among the latter is the suggestion as to the attitude of the various 
nations toward world trade at the conclusion of the war, whether or not that 
be far distant. You will have noticed that in his answer to the peace note of 
the Pope, President Wilson has in positive terms, as far as diplomatic restraint 
permits him to say it, laid down demands for a world democracy of trade in 
open international competition. Here is his proposition: 

“ Punitive damages, the dismemberment of empires, the establishment of 
selfish and exclusive economic leagues we deem inexpedient and in the end worse 
than futile; no proper basis for a peace of any kind, least of all for an enduring 
peace. That must be based upon justice and fairness and the common rights of 
mankind.” 

Comments upon this program by the associates of the United States in this 
war have been very guarded. In all matters of trade and foreign enterprise 
we know that England stands always firmly upon her centuries of experience, 
which she applies without sentiment but with energy, courage, and tenacity.’ 
What she determines to do with respect to world trade after the war will go far 
toward fixing the status of the competition. Great Britain’s experience and long- 


MARINE INSURANCE. 


243 


established connections in world trade suggest that she will continue the leading 
competitor the moment peace opens the doors to trade resumption. Her po¬ 
litical and trade statesmen alike have been studying the problem from the atti¬ 
tude of final peace under the financial burdens imposed by the war. Lord 
Cromer, the greatest British fiscal administrator, discussing the necessity for 
revenue after the war—the necessity for which increases daily—said a year 
ago that free trade would have to yield its objection to a general tariff to the 
political necessity for the colonies to be brought into closer relations with the 
Imperial Government through a preferential treatment of their products as 
against those of outside nations. Said he: 

“ Such a tariff, or something very like it, will now have to be created for reve¬ 
nue purposes. It will be quite impossible to meet the whole of the heavy burdens 
thrown upon us in consequence of the war by a resort solely to direct taxation.” 

The inevitable suggestion is that Great Britain will make an experiment 
in tariff for revenue only with preferences to her colonies, which will have 
some effect as a protective tariff against other nations. With that exception, 
Great Britain expects to continue her trade policy of centuries, and none 
of her authoritative statesmen in commenting on President Wilson’s peace note 
has traversed the general proposition of Lord Cromer. 

To the extent of a general tariff with preferentials it is suggested that Great 
Britain will approach the conditions of foreign trade that will exist in the 
United States when the protective tariff that has been revised downward can 
come into free play. This tends to bring the two great democratic English- 
speaking nations into competition under terms somewhat comparable. 

If they had only each other to deal with, then national American political 
policy could address itself solely to the task of enabling the enormous produc¬ 
tive and commercial resources of the United States to qualify for the compe¬ 
tition that would ensue. But the competition will not be so confined. 

German economists are planning no less actively than those of Great Britain. 
There, it might be thought, the planning would hinge upon the character of 
the peace that will be reached. But, so far, all of Germany’s productive and 
business activities have been conducted on the basis of paternalism, with the 
Government in the attitude of a trust to furnish the needed support, which 
is always forthcoming when adventurers into business fields can show competent 
management and good prospects. Considering how Germany has prospered 
and how enormously its foreign trade had grown in the past 40 years, the sug¬ 
gestion is natural that whatever changes of political form come with peace 
German statesmen and the German people will continue their government- 
backed financial policy in their foreign trade. Japan seems to be imitating that 
policy, increasing her banking facilities abroad, enlarging her shipping, develop¬ 
ing her insurance, establishing new manufactures and productive industries— 
preparing for every eventuality while the rest of the world is busy with war. 

Here we have the four main competitors lined up for the future world’s 
trade: Great Britain, the best equipped; the United States, with vast potential 
strength; Germany and Japan on very different lines. However the war may 
conclude, nothing can remove the popular necessities or long restrain the na¬ 
tional demands of these four countries, not one of which is in decadence. 
It is reasonable to expect, therefore, that with her unrivaled experience and 
connections Great Britain will be in an attitude to influence largely the terms 
of trade competition, subject to modification by the power of the centralized 
and paternalistic governments of Germany and Japan. The ultimate control 
would, then, it would seem, lie within the province of the United States to com¬ 
mand, with her incalculable wealth and productive powers in full action. It 
is the great opportunity of history, not to be overlooked. 

Already there are signs of preparation for extending foreign trade for the 
United States, about which you are probably better informed than I, since 
they refer particularly to the selling, banking, and shipping ends. For in¬ 
stance, the announcement by the American International Co. of a new sub¬ 
sidiary to engage in the exportation of steel and its products. It comprehends 
the establishment of offices at London and Buenos Aires at first, with others 
to follow in the principal ports and cities of the world. Dow, Jones & Co. 
explain its purposes: 

“ The new corporation intends to develop a foreign selling organization so 
that this, combined with its financial and shipping connections, will bring the 
foreign buyers and the American steel manufacturers into much closer relations 
than have existed heretofore.” 


244 


MARINE INSURANCE. 


Unless American insurance accompanies these other facilities it is inevitable 
that every ton of the steel exported and the exchange cargoes returning will 
pay toll to foreign insurance interests that will comb out profits in close com¬ 
petition. At equal rates the mere holding of insurance premiums in the United 
States will fertilize the export business and to the extent of their volume com¬ 
pound its strength, besides imparting a national spirit of independence to 
Americans scattered abroad that will cultivate respect for and fear of Ameri¬ 
can influence, so much needed to support an international trade. It is strongly 
indicative of the truth of what I say as to the necessity of preparing to pro¬ 
ceed with banking and insurance that the New York University has established 
a series of lectures to be given by practical men to the students on the subject 
of marine insurance. 

In the midst of the war we find England and Germany planning for great 
post-war shipping enterprises. The Americas, publication of the National City 
Bank, says of them: 

“ The real problem, as men who are in touch with what is being done with 
building the new mercantile navy now see it, is to provide for the time of peace 
after the war, when a very important element in the international contest for 
commerce is going to be the organization of systems of navigation along na¬ 
tional lines. England and Germany are both preparing for this. Germany 
has recently announced a policy of subsidy to encourage rebuilding of merchant 
ships. * * * 

“ There is reason for believing that the British shipping interests hope for 
Government cooperation in a program of large dimensions in which the cargo¬ 
seeking ‘ tramps ’ of 10,000 tons deadweight capacity, which shipping experience 
calls most economical for peace-time trade, and giant steamships (or motor- 
ships) running on regular lines and advantaged by having preference and privi¬ 
lege in a system of harbors strategically placed in all parts of the Empire, 
will first serve the behests of British commerce. 

“ In England it is predicted that our development of future shipping is to 
take the form of regular lines of great, fast steamers and of special fleets 
owned by single corporations and combinations of them which will be used as 
delivery system, perhaps offering some public service also. We do not do much 
with the ‘ tramps,’ in English opinion.” 

The article also explans and discusses the school of instruction that is pre¬ 
paring officers to command the emergency fleet now constructing for war-time 
operations, which will he the nucleus of American merchant shipping after the 
war. 

Similar preparations are being made both in Great Britain and Germany 
to provide the insurance protection that they know by experience is so neces¬ 
sary to the protection of banking and shipping.' The Insurance Field, of Louis¬ 
ville, a leading paper in the insurance trade, has the following news in connec¬ 
tion with a warning to American underwriters to organize for ocean marine 
business: 

“ The importance of the ocean marine business must not be underestimated. 
It conserves and protects all the rest and is the very ark of the covenant of 
all foreign trade of every country—without it trade withers. In the past 
half a dozen years there has been a steady absorption by British fire, life, and 
casualty companies—and most big British companies write all these—of the 
marine companies of the Kingdom. Since the war began the Scottish Union 
& National has purchased the Maritime; the North British & Mercantile has 
purchased the Ocean Marine; the Northern has taken over the Indemnity 
Mutual Marine; the Phoenix of London owns the Union Marine; while the 
London & Lancashire—which already owns the Reliance Marine and Standard 
Marine—has this year acquired the Marine of London. With the Royal own¬ 
ing the British & Foreign Marine, the Yorkshire possesing the London & Pro¬ 
vincial Marine, it will he seen that Great Britain’s far-seeing business states¬ 
men are getting ready for the great business contest.” 

[Note. —There may be errors as to individual ownerships in the list, but the whole 
substance of the stateme nt is entirely true.] 

It may be added that other mergers and purchases are now in process of 
negotiation in England. 

The Munich Neueste Nachrichter, a leading German newspaper, gives the 
following summary of what German capitalists are doing, with similar ends in 
view (translation in the Journal of Commerce) : 

“German insurance has been able to maintain itself during the three years 
of war without the aid of moratoria or similar protection, and is at present 


MARINE INSURANCE. 


245 


actively engaged in fortifying itself for the struggle after the war for the cov¬ 
ering of all German requirements for insurance without recourse to the inter¬ 
national market or, at any rate, to enemy countries. 

“ In transportation insurance the insurers have long ago deduced for the 
economic measures adopted in enemy countries the necessity of so strength¬ 
ening their position as to be able to take the largest risks independently of the 
international market. Hence, the new foundations, especially in the seaport 
towns—Hamburg, Bremen, Lubeck, Stettin—and the amalgamations, partly 
in the form of complete coalescence and partly in the looser form of com¬ 
munity of interests. In either case the motive is extension of business and 
reduction of outlay, as well as the desire to secure the support of a larger 
concern. 

“ The same tendency to expansion also manifests itself in the insurance of 
goods. Furthermore, a large number of tire insurance companies, having in¬ 
creased their guaranty funds, are devoting themselves to transport insurance, 
while many transport insurance companies are adding tire insurance to their 
activities. By the most inconsiderable increase in the number of insurers in 
both these branches, the possibilities of German insurance business are enor¬ 
mously extended, and German insurance is thereby made independent of the 
international, and especially of the English, market. 

“ The movement for the expansion of German insurance has led shipping and 
trading circles to think of uniting individual insurers into an organization 
similar to Lloyd’s in London. Whether this scheme will be realized remains to 
be seen. More welcome, because more in accord with actual requirements, is 
the new venture started on June 1. 1917, for providing shipping intelligence, 
which is another practical expression of Germany’s desire to free herself from 
London. 

“ In tire insurance similar tendencies toward fusion and amalgamation, as 
well as the augmentation of guaranty funds, are observable.” 

Conditions after the war having been suggested for your consideration, it is 
proper to turn to the potentialities of the United States for entering upon the 
world’s trade and controlling* a share of it in every way commensurate with 
our productive and distributing capacity. Of production there is, for conditions 
likely to exist for the future, practically no limit. Our distributing capacity, 
which implies exchanges, will be exactly what the business genius of the coun¬ 
try, aided by adequate laws, makes it. We must assume that political genius 
will cooperate with business genius and as far as possible provide laws that 
will give freedom to American enterprise in establishing American compe¬ 
tition in every quarter of the world where our products can be exchanged 
profitably for those of other countries. 

First of all, our distributing capacity will depend absolutely upon the union 
and cooperation of American banking capital. American shipping and Ameri¬ 
can insurance. All these must start together, continue together and grow 
together until like the Britons and Germans, American merchants and traders 
can, wherever they go for business, find near at hand the support of American 
money and institutions and the backing of American national pride under the 
flag. " No American who has traveled, or who has had in his business to meet 
foreign competitors, can have failed to recognize the national spirit of Britons 
and Germans which everywhere brings them to the support of their own 
business enterprises and institutions as against all others. Under equal con¬ 
ditions everywhere they give their business to their own national. This is 
not true of Americans—not that they are less patriotic, but because they can 
not be assured of American support and the presence of American representa¬ 
tives everywhere, and so Americans learn unconsciously to depend upon other 
facilities that they know are world-wide in existence. As the British speak 
our language and' are most nearly allied with us in their traditions, it has 
followed that Great Britain has largely been the financier of Americans in 
foreign countries, has carried our commerce overseas, and furnished our 
insurance to a large extent even in this country itself—almost wholly in the 
foreign carrying trades. Other nations and ourselves get only the excess of 
this and usually the unprofitable part. 

You are yourselves entirely familiar with the banking resources of the 
United States and know how they may be extended in trade pathways. On 
the shipping question you can command the views of experts. I only suggest 
that, as the Shipping* Board has wisely resolved to construct all-steel ships 
for the war emergencies, the end of the struggle will find the United States in 
possession of a merchant fleet that can be put to immediate use to build up 
our world’s trade. If we are not prepared to precede it and follow it with 


246 


MARINE INSURANCE. 


banking and insurance facilities, not only will the fleet be dispersed at a great 
national loss, but all the potentialities of the national wealth and energy 
that can be employed in world’s trade will be lost with the fleet. 

We are now practically pledged to the investment of $21,000,000,(X)0 in the 
war, of which one half will probably be repayable as loans. The other half 
will be a financial waste unless the military and naval power that it builds 
up for us is to be accompanied by the extension of national trade. You know 
quite well if the United States is merely to wait patiently for the repayment 
of her loans to other nationals, that repayment will surely be made out of 
profits they make out of us in our own trade, or out of trade that will be 
theirs merely because we resign it to them without an effort to control it. As 
a business proposition we might better afford to lose the loans than to resign 
the enormous values in a world’s trade. Without speculating at all upon the 
probabilities of the migration of populations after the war, we must face the 
problem of an enormous increase of population in the United States in the 
next generation and must lay the foundations for employment and support 
of more than two hundred millions of people, the working factors and produc¬ 
tive capacity of which are increasing steadily through the entrance of women 
into all avenues of occupation. And we must take care to make that great 
industrial population the best rewarded in the world. This is going on else¬ 
where amongst all our competitors, and the United States can not without 
disaster attempt to remain stationary or even merely to hold her own. These 
suggestions are offered because as business men we must look to the future 
before the problems that will surely arise shall force themselves upon the 
unprepared attention of those responsible for governmental policies. If busi¬ 
ness does not pioneer the way for liberal laws such laws will not be enacted. 

My main purpose is to put before you the opportunities and ramifications 
of insurance capital in the world’s trade. It fulfills the very vital purpose 
of protecting and stabilizing the banking, commercial, and shipping factors. 

It is well known that the English banks in South America and all over the 
world, appreciating the necessity of insurance as a complement of banking and 
shipping, established for themselves a ready market with which to provide 
this insurance to those with whom the banks did business. A limited under¬ 
writing facility for marine and fire insurance (limited in conditions, but not 
in amount), was given to these branches of the London banks by the insurance 
offices in London, and when loans were made on property, let us say, in South 
America, they were made upon the condition that the banks should furnish 
the insurance. Say, for example, a man requested a loan on standing crops; 
this was made by the bank and the fire insurance policies protecting the loan 
issued by the bank, and the marine insurance when the grain was exported also 
issued by the bank. Thus it has occurred that many branch banks do a large 
and profitable business in insurance as well as in banking, and they have the 
advantage at the same time of knowing that their insurance is properly 
secured in responsible companies. We have never, up to the time of the war 
and the time of the extended foreign interests of our own banks, been in a 
position to induce American underwriters to enter these fields, because there 
have been no branch banks with whom they could affiliate except foreign 
branch banks. Now that the American banker is going into the foreign field 
he must take with him his American insurance companies, and the American 
company is not loath to enter this field if it can have with it its complement, 
the banking institution. 

Insurance furnished by competitors can be used to comb the profits out of 
any trade. It has recently been done in the present war emergency. American 
companies having outstanding contracts with shippers to furnish ocean marine 
insurance found themselves deprived of reinsurance facilities by the President’s 
proclamation forbidding such transactions with German companies. In the 
absence of sufficient American marine insurance the German companies were 
strong enough to furnish needed competition for American business against 
British companies. Immediately this German competition was prohibited 
American companies seeking cover for large lines had to rely upon British 
companies for reinsurance. These at once quoted prohibitive rates, in one 
instance of which I was informed, as high as 10 per cent, where the contracts 
of American companies were based on a rate of 21 per cent. This was fol¬ 
lowed by an advance of 10 per cent on all English hull insurance written in 
London. When the American Association of Marine Underwriters proposed 
that the same advance be made on American hulls written in New York and 
London markets (to compensate in part for the greatly increased cost of 
repairs) the London board of control declined on the ground that it^ was 


MARINE INSURANCE. 


247 


inexpedient. Yet at tlie same time American shipowners could, it was 
credibly stated, get lower rates on hulls by going direct to British offices in 
London than they could get from those same companies through their Ameri¬ 
can branches. The result was that considerable hull business was transferred 
to London at a loss to American offices and interests. This was done at a 
time when the shipping involved was rendering important service to Great 
Britain and her allies, and so indicated the undeviating business purpose to 
prevent the growth of marine insurance in the United States. 

These instances of control against our interests could not have been carried 
through but tor the fact that Great Britain possessed the banking and ship¬ 
ping facilities that rendered the use of her insurance not only desirable but 
profitable. Without the use of all three the use of one may "be had only at 
rates just less than prohibitory, if not entirely so. I am not criticizing the 
British companies for controlling the business, but quote the fact in illustra¬ 
tion of the power of insurance for national protection wherever it can be exer¬ 
cised—both in peace and war. 

There are no available statistics of ocean marine insurance. The great 
bulk of it has been written by British stock companies and by individual 
underwriters at Lloyds, London. There the details of such operations are 
trade secrets, reports, if any, being made in confidence subject to test by a 
committee of the Board of Trade and by audit of Lloyds. Thus their volume is 
a business secret in the keeping of business committees, and combined trade 
balances only are made public. For similar reasons there is an absence of 
analytical reports of the insurance of most other nationals. In the United 
States comprehensive statistics are kept by most classes of the business trans¬ 
acted in this country. But even here the inland marine transactions are com¬ 
bined with the ocean marine, so there are no specific returns of the latter. In 
the United States for the past three calendar years the combined inland and 
ocean marine premiums were reported as follows: 


1914 _$32,114, 926 

1915 _,____ 47,418,071 

1916 ___ 70, 663, 999 


[Note. —These figures apply only to business written and reported to New York. 
Marine underwriters estimate a volume of premiums equal to one-third of those reported 
as being written abroad on American business by British and other foreign companies 
and Lloyds admitted to do business here, hut making no reports of the same here and 
thus avoiding taxation. The law can not reach out and require compliance in Europe. 
With that estimate addition the approximate actual figures would be for 1914 about 
$43,000,000, for 1915 about $63,000,000, and for 1916 about $94,000,000.] 

These increases represent the increased values and rates of American busi¬ 
ness carried during the war. An analysis of the premiums reported and unre- 
ported distributes them as follows: 



Number. 

Reported. 

Unre- 

ported. 

1914 

American companies. 

23 

19 

13 

$18,974,216 
8,808,245 
4,332,465 


British companies. 

$9,634,478 
1,070,497 

Other foreign companies . 

Total. 

55 

32,114,926 

10,704,975 



Number. 

Increase. 

Reported. 

Unreported. 

1915. 

American companies. 

23 

19 

13 

Per cent. 
48 
45 
50 

$28,071,557 
12,851,204 

6,495,310 


British companies. 

$14,225,421 
1,580;, 602 

Other foreign companies. 

Total. 

55 


47,418,071 

15,806,023 

191G. 

A m erican com panics... 


23 

19 

13 

47 

38 

82 

41.208,085 
17, 712,774 
11,743,140 


British companies. 

21,199,200 
2,355,466 

Other foreign companies. 

Total . 

55 


70,663,999 

23,554,666 























































248 


MARINE INSURANCE. 


When the amount (one-third) of unreported business written by foreign com¬ 
panies is considered it will be seen that the premium increase of British com¬ 
panies was far greater than all the others. 

It will be noted by casual analysis of these figures that American companies 
write a little more than half the United States marine business, and, when the 
unreported writings are considered, less than half. This has been due to the lack 
of American bottoms and lack of prestige of American insurance connections 
abroad. There is more than this to be considered, however. A considerable 
share of the ocean marine premiums written and reported by American com¬ 
panies comes from the reinsurance of excess lines written by British companies 
abroad on great tonnages carried in one vessel. It would be quite fair to 
assume, therefore, that only one-third of reported American business is written 
by American companies—a share wholly inadequate under any sound theory of 
financing American business. 

In a tentative way, in the absence of specific statistics, and considering normal 
apparent tonnages as a basis, I do not hesitate to estimate the ocean marine 
premiums of the world at between $250,000,000 and $300,000,000 a year. With 
the establishment of a sufficient merchant shipping to carry our share of the 
world’s trade, and the expansion of banking facilities to support it, there is little 
reason to doubt that American insurance can divide two-thirds of the premiums 
with Great Britain. In other words, an annual premium of something like 
$100,000,000 or more—an increase to that sum from prewar normal receipts of 
some $1S,000,000 to $25,000,000 by American companies—is to be expected as 
the American goal in a reasonable time, say three or five years, provided the 
banking and shipping facilities are supplied to create and maintain the trade. 
The sooner these three factors are supplied the better it will be for them and 
for the future commercial strength of the country. The present activity in 
building ships, in organizing and training the National Army, the demand on the 
United States for supplies that other countries need—all these are creating an 
atmosphere of national inspiration and pride which can and should be encour¬ 
aged and made permanent for the realization of American industrial, com¬ 
mercial, and political supremacy. Some one nation must always be dominantly 
the arbiter of international requirements, as Great Britain has been for more 
than a hundred years. It is suggested that now is the time for the United 
States to begin to forge to the front, a time when, through no fault of ours, the 
way has been opened wide to the active brain, the strong heart, and the power¬ 
ful resources of the young nation. 

As far as ocean insurance is concerned there is already a large premium 
income secured to the proper organization when made. 

But this is not all. This is only the proposition as it applies to the opportuni¬ 
ties in marine insurance, in which large profits have always been made after 
allowing for the years of depression. By proper organization there is also a 
great opportunity in the expansion of fire insurance already created with 
profitable returns, having endowments of capital and asset securities already 
established which will serve at once to strengthen banking and shipping facilities. 

The United States is the largest and richest fire insurance field in the world. 
Premiums collected here and in Canada (an open territory) probably exceed 
those of the rest of the world combined. So great and inviting is this field that 
all the large companies of other nations are domiciled here with independent 
branches for writing business direct and by reinsurance. These foreign com¬ 
panies numbering 80 in 1914 and 1915, and 83 in 1916, collected American pre¬ 
miums, fire and marine, as follows: 


1914 __$120,951,991 

1915 ___ 127, 345, 691 

1916 _ 149, 894, 770 


These are not all the premiums written here by these companies. For some 
years foreign companies, more particularly British, have been organizing and 
purchasing other companies already organized under American laws, which they 
operate as companies of the United States. This is done with money of the home 
offices, the use of which is permitted by British law although the similar use of 
funds is practically forbidden to American companies by the laws of many 
States. Such combination and interlocking is fostered by the business of Great 
Britain. They can not use the funds of their American branches for this pur¬ 
pose, but they borrow the money here or send it over and so have gradually 
been increasing and strengthening their hold upon American fire and general 
insurance. There are half a dozen such companies writing fire insurance, collect- 





MARINE INSURANCE. 


249 


in r some 0°0, 000 of premiums, which are reported and tabulated as pre¬ 
miums of .American companies, whereas their net collections are ultimately 
covered into the foreign treasuries of the companies owning them. The annual 
premiums taken by foreign companies in fire insurance in the United States in 
UK) was, therefore, in round figures $161,000,000. 

As against this volume by 83 foreign companies, 217 American companies 
collected premiums of $294,242,296, less the $12,000,000 concealed under the 
Amencan entitlement of foreign-owned companies. That is, of $444 000 000 of 
total net fire premiums collected, foreign (principally British) companies wrote 
ob pei cent of them. Many of these British companies have organized and are 
nov a so purchasing liability, casualty, and workmen’s compensation companies 
and by putting into the hands of their agents general lines of insurance facili- 
ties they will be able to accommodate and supply every demand for insurance, 
fins, it not checked or met by countersupply from American interests, will give 
British compotition in world’s trade an advantage wherever the necessities of 
insurance protection and banking credit arise. 

These activities and extensions of British companies are thus particularly 
pointed out and explained not in jealousy, but in admiration, as being flexible 
and powerful models both for the creation and protection of British trade. The 
United States can not compete with Great Britain in foreign trade without 
means ultimately to be made at least equal in adaptability and strength. 

For nearly a century British companies have been operating in the United 
States, most of them rendering good service to the public. They have made good 
profits out of it—more, usually, than the American companies make, because 
of their advantage in being able to operate under various forms with one over¬ 
head and directing charge (denied to American companies) added to the supe¬ 
rior liberality of British insurance laws in general. The suggestion arises that 
if the British laws are admirable enough in their liberality to be sound for the 
protection of American policyholders, then the United States should adopt 
equally liberal laws and thus enable American companies to compete without 
handicap. 


So also British and all foreign companies have greatly profited here by these 
sigular facts: That the United States, while enforcing with respect to its im¬ 
port commerce the principle of a protective tariff, has abandoned its entire 
home insurance fields—so rich in values and opportunities—to the principle of 
free trade. At the same time, under the numerous restrictive State laws for 
the regulation of interstate insurance (having the effect of a protective tariff 
on insurance between the States), American companies-have befen securely 
bound against engaging in free trade world’s insurance. This in doubly eco¬ 
nomic suicide, since it prohibits us from competing with foreign countries to 
protect our own insurance as well as *to obtain an exchange share of theirs. 
Yet, unless American insurance capital can accompany American banking and 
shipping, the extension of American commerce will be exposed constantly to 
serious limitation and failure. 


[Note. —In this connection attention is called to H. R. 2316, the Webb-Pomerene bill, 
which has passed the House of the present Congress and is now privileged and pending 
in the Senate. It permits the association or joint agreement of corporations for export 
trade purposes without violation of the Sherman Act. It has received the approval of 
the Chamber of Commerce of the United States and is vitally necessary for the building 
up of export trade. It should be amended to include, or a separate bill should be en¬ 
acted to give to American stock insurance companies exactly the same privileges after 
registry or license by the Federal Trade Commission, to cooperate with producing and 
trading corporations in the export trade and to the same extent relieve them from 
violation of State law^s concerning purely domestic insurance.] 

Now we come to the very ultimate crux of the economic proposition. Ameri¬ 
can companies under ordinary conditions are now able to carry the whole of 
American fire and general insurance, just as we actually do our own life in¬ 
surance, in which the foreign influence is not perceptible. But in years of 
disastrous losses, such as 1871-72, in the Chicago and Boston conflagrations, and 
1906, in the San Francisco fire (when American companies were less strong), 
these foreign companies contributed materially to relieve the economic pressure. 
In 1906 they paid their San Francisco losses largely out of funds sent over from 
their home offices, without disturbing the funds of their American branches. 
It is calculated that funds to an amount between $40,000,000 and $60,000,000 
were thus imported, and to that extent the great losses were immediately dis¬ 
tributed over the world, instead of being laid upon the United States alone. 
The funds thus imported have since been recouped, but the burden was none the 


250 


MARINE INSURANCE. 


less eased off. It was far-seeing business ability to take such a step, and the 
British companies acted with one accord, as they always do. 

There is an undoubted economic demand for the world-wide distribution of 
these vast conflagration losses, coming, as they do, unexpectedly and suddenly. 
As long as the danger remains the means for world-wide distribution of the 
effects should exist. The point is, why should the United States, with its 
abundant capital-—presenting in itself the richest tire insurance field in the 
world—have to resign the distribution of its infrequent disastrous losses to 
Great Britain at the cost of the annual exploitation of this field to the extent 
of nearly 40 per cent of the income from it, which is steadily increasing annu¬ 
ally? The statistics that have been quoted above apply only to stock companies, 
305 in all, and only to net premiums. In the same year these stock companies, 
mutual companies, and Lloyd’s wrote in the United States gross premiums of 
about $680,000,000, of which $507,523,636 was net. It is this vast field, in 
which cash assets of $748,426,446 are employed by American stock and mutual 
companies, that is being headed toward control and lias its world distribution 
directed by invested foreign assets here of only $217,432,715. _ 


[Note.— The figures concerning American fire insurance above quoted are taken from 
the Spectator Year Book of Fire and Marine Insurance for 1917, the authoritative 
publication of American insurance statistics.] 

It must not be forgotten that the United States is in return accepting and 
discharging its full share of such distributing responsibilities. More, perhaps, 
because through the volume of business written here by foreign companies the 
fire insurance of the world is mainly financed. “ The Insurance Field,” hereto¬ 
fore quoted, contained August 2 this statement, which errs a little, if any, on 
the side of conservatism : 

“The London Times in a recent review of fire insurance for 1916 shows that 
17 British companies took total premiums throughout the world that year of 
$135,600,000, in round figures. Of this total their American branches collected 
$72,200,000 in the United States, leaving the intake from the rest of the world, 
including the British colonies, South America, and the Orient, $67,400,000. 
That is, 53 per cent of the world’s premiums of these companies were collected 
in the United States. The British are great world’s merchants of business, 
and push their enterprises wherever their navy reaches and their banking and 
shipping influences extend. But there was collected in the United States alone 
in 1916 $444,000,000 in premiums.” 

The American premiums of these 17 British companies were probably 
$81,000,000; and were therefore, nearer 60 per cent of their world premium than 
53 per cent. 

The obvious economic duty of the United States, and the opportunity of 
American capital is to use and direct this vast field of income for its own 
internal strengthening and to effect its own world-wide distribution, in which 
it has the greatest share, and from which good profits arise. 

The establishment of ocean marine insurance in connection with banking and 
shipping is the open gateway to ultimate fire insurance control. With the 
exception of a few offices in Canada, Mexico, and Cuba, no American insurance 
company that I know of is represented or entered in any foreign country of the 
world, either for fire or marine business. It is not for lack of enterprise or 
talent. American life insurance companies at one time successfully contested 
the principal foreign countries for business. They wrote business in Great 
Britain, France, Germany, Italy, Spain, and Russia alongside the native com¬ 
panies. Hostile laws eventually compelled their withdrawal. Similarly many 
years ago one or two American companies undertook to establish a branch in 
London for British fire insurance, as the Insurance Co. of North America 
afterwards undertook to do for its marine department. In both instances 
the undertaking came to nothing for various reasons. Principal among them 
was the fact that the ramifications of property interests covered under fire 
insurance (unlike life insurance) are so involved that in the absence of banking 
and shipping alliances there was no way of creating business prestige and 
when to this was added the unwillingness of Europeans to buy from any for- 
eignei that which they can purchase from their own countrymen, representing 
their own institutions, such offices were closed, and no American fire insurance 
company has since been known in Europe. 

W ith the establishment of banking, shipping, and ocean marine insurance 
having fire insurance powers these obstacles can be removed. In every port 
and center the commercial and other property connections radiate from the 
ai ge shipping interests, so that the prestige of American ocean insurance 


MARINE INSURANCE. 


251 


through banking and shipping would tend steadily to the extension of tire 
insurance to property. In that way, in time, the distribution of American 
losses throughout the world would come to be achieved through American 
channels instead of through foreign channels. 

I am not attempting to intimate that these ends can be easily or quickly ac¬ 
complished. They can only advance toward full accomplishment with the crea¬ 
tion and success of the bauking and shipping factors. Of the rate at which 
these may advance you have your own sources of knowledge. The insurance 
factor, will, however, hasten and tend greatly to secure the success of the 
others. In the meantime, by proper organization, there is already a profitable 
and constantly growing investment in hand in the insurance incomes already 
established, with assets founded upon the highest class of securities. 

In conclusion, there are two practical points to be noted: 

1. There is underwriting talent in the United States wholly capable of work¬ 
ing out the aims suggested above. 

2. The plan does not contemplate destructive competition with foreign com¬ 
panies in marine insurance rates. There would be no wisdom in such a course. 
Nor does it contemplate merely building up marine insurance for the profit in 
that activity. The purpose is to provide cooperation between American bank¬ 
ing, shipping, and insurance that will furnish facilities capable of supplying the 
needs of our national interests in the colossal struggle for the world’s trade 
after the present war. With these facilities supplied a great and steady growth 
is certain—without them failure in the end is equally certain. 

Mr. Edmonds. Now, Mr. Evans, have you given the question any 
thought as to what could be done by Congress toward helping out the 
situation beyond licensing? 

Mr. Evans. Well, I have. I have not come to any very definite 
conclusion, because I do not know how you can do it. 

Mr. Edmonds. Let me ask you a few things: The Shipping Board 
was given authority to supervise marine insurance. 

Mr. Evans. Yes. 

Mr. Edmonds. Don’t you think that some authority, not using the 
information acquired for publicity, but with the idea of supervising 
any inequalities or calling attention to any real dangers to American 
insurance interests, would be a good thing—requiring statements and 
carrying a record of documents or agreements, and things of that 
kind ? 

Mr. Evans. I do not know that I quite get your idea. You mean 
a Federal bureau here that will license and keep on file- 

Mr. Edmonds. License; and not only that, but keep on file any 
agreements or particular documents, or things of that kind, that 
would give them an idea as to whether any particular company was 
doing anything inimical to the interests of American marine insur¬ 
ance companies. 

Mr. Evans. I think so, sir. I do not think you need fear publicity, 
because we have 48 sovereign States that require all kinds of infor¬ 
mation, and anybody can get it; and it costs my companies a good 
$10,000 a month to‘get it up for them, and it is not worth three 
whoops after they get it up. 

Mr. Edmonds. The question would be this: We do not want to 
regulate the insurance business, of course; we are working for the 
benefit of the insurance companies. 

Mr. Evans. I see. 

Mr. Edmonds. And the question in my mind is whether some super¬ 
visory authority would not make the business a little more healthy 
by correcting inequalities or any injustice one man might do against 
another. The spirit of the day is not competition; it is combination. 

Mr. Evans. Yes. 



252 


MARINE INSURANCE. 


Mr. Edmonds. And in order to bring about a better feeling and in 
preventing any injustice there might be done, or any particular 
danger there might be toward American insurance interests, a bureau 
that would have all these documents and would look them over and 
see all the danger points, and call attention to that to the particular 
parties interested—don’t you think that would be a good thing? 

Mr. Evans. Yes. Properly directed and for the purpose of helping 
the business, I think it would be a good thing. 

Mr. Edmonds. For instance, there are communities of interest, 
there are amalgamations, and there are different things of that kind. 
Some of them are very good for the business, and others are not so 
good. 

Mr. Evans. Yes. 

Mr. Edmonds. Another thing that struck the committee was the 
desirability of extending the Webb-Pomerene bill, or a bill of similar 
character, toward removing any possibility of- 

Mr. Evans. Infraction of the Sherman law? 

Mr. Edmonds. Of the antitrust law. Do you think that would help 
insurance along? 

Mr. Evans. Yes, sir. 

Mr. Edmonds. Providing, of course, we extended it only to purely 
American companies ? 

Mr. Evans. Well, the insurance business is of such a character that 
there can never be a trust combination. There is no patent on it. It 
only takes $200,000 to start an insurance company, and the minute 
your profit is abnormal you are going to have competition. 

Mr. Edmonds. Yes; I think that is true. Yet, at the same time, 
take a legitimate pool, not with the idea of monopoly, but with 
proper provisions in that pool they should not keep out of member¬ 
ship some man who wants to go into it ? 

Mr. Evans. That is all right. 

Mr. Edmonds. Make it free for every fellow who is responsible, in¬ 
stead of tying it down to three or four or five companies to handle the 
whole business, would strike me as a very desirable condition, because 
it would bring about a better feeling between the companies and a 
better understanding. 

Mr. Evans. Who is going to be the judge as to who is responsible? 

Mr. Edmonds. Why, under a bill like the Webb-Pomerene bill it 
would be the companies themselves; there would not be any Federal 
head or anything like that, but it would be open to a number of purely 
American companies or the companies to whom the combination 
feature was extended to get together. 

Mr. Evans. Yes. 

Mr. Edmonds. And they would appoint their own head and work 
together. I find at the present day when you get a lot of men together 
they are not quite as big rogues as you thought they were when they 
were not together. Very frequently you think your competitor in 
business is a great rogue and is playing many tricks, and when you 
get together you think differently, and after talking these things over 
once in a while you have a better understanding with them and you 
do not have as much trouble. 

Mr. Evans. That is right. 

Mr. Edmonds. Have you any idea of any remedy that could be sug¬ 
gested to prevent the exportation of insurance from this country? 



MARINE INSURANCE. 


253 


at 1 tJ VANS * ^°’ exce Pt as I suggested—-a system of license. 

Mr. Edmonds. A system of license might help. 

Mr. Evans. It will help the situation. 

Mr. Edmonds. It might help the situation, but it could not pre¬ 
vent it. 

Mr. Evans. No. 

Mr. Edmonds. There is nothing to prevent it that I can see myself; 
as near as I can get at it, unless some of you gentlemen who are experts 
at the business can suggest something. 

Mr. Evans. I can not suggest anything. Perhaps some of these 
men who handle that line of business could tell you more than I can. 

Mr. Edmonds. The experts, though I doubt if they could and I 
doubt if they will. As to the taxation feature of it, I was talking with 
members of the Ways and Means Committee, and they do not feel 
very pleasant about it; they had an idea they were taxing this in¬ 
surance equally, and they did not like the situation of seeing the in¬ 
surance premiums run away from them and taxing on this side and 
not on the other. I was talking last night with a member of the Ways 
and Means Committee, and he thought possibly they would find some 
way of reaching it, but I doubt very much if they will find any way 
of reaching it. 

As to the desirability of permitting marine and fire insurance com¬ 
panies to transact other kinds of business, we understand in various 
State laws there is a considerable limitation on the business a com¬ 
pany might do. But it seemed to be the opinion yesterday if a com¬ 
pany could broaden out and take a number of different lines of busi¬ 
ness, it would be a much healthier condition for the insurance com¬ 
panies. Is that your opinion ? 

Mr. Evans. There is no question about it. I think an insurance 
company should be allowed to transact all kinds of business. 

Mr. Edmonds. Outside of life? 

Mr. Evans. Outside of life, if you will. The Atlantic Mutual Ma¬ 
rine, for instance, has an old charter which I think gives it a right to 
do even a life business, but I do not think any of the fire companies 
would care to go into that line. The English companies do a like 
business in all of the lines. They keep their accounts separately. 

Mr. Edmonds. They even insure election bets don’t they? 

Mr. Evans. Yes—well, that is Lloyds. 

Mr. Edmonds, I suppose the tax restrictions will have to be borne 
at the present time. Have you any suggestion along the line of tax 
restrictions ? 

Mr. Evans. Why, no. I think the insurance companies are only 
too glad to pay their share of the war expense, but I think there is a 
special one per cent tax there on the premium income. Is not that so 
Mr. Reese? 

Mr. Reese. Yes. 

Mr. Edmonds. Is that a Government tax? 

Mr. Evans. A Government tax. 

Mr. Edmonds. Then you have your State tax on premium incomes 
don’t you? 

Mr. Evans. Yes. Our taxes to-day are running pretty close to 10 
per cent. 

Mr. Edmonds. On your premium income? 

Mr. Evans. Yes. 


254 


MARINE INSURANCE. 


Mr. Edmonds. On your gross premium income ? 

Mr. Evans. Yes; a great deal more than our profit. My company 
take the Continental, it has been one of the successful companies in 
the business, it shows an average earned premium profit of 5.53 per 
cent for a series of years. 

Mr. Chindblom. For how many years? 

Mr. Evans. Thirty. 

Mr. Edmonds. Then you must have advanced your premiums in 
order to meet your taxes have you not? 

Mr. Evans. We put 10 per cent on to cover the extraordinary ex¬ 
pense connected with the conduct of the business at this time, not 
merely the taxes, but the increased postage w T hich is a very large 
amount with us. 

Mr. Edmonds. And wages? 

Mr. Evans. Wages; and then repairs to buildings that we had 
negotiated at the old rates for which we could not get anything extra 
on. But the commissioners at a recent convention that they held 
became very much excited and they forced that off. Now I think the 
business was better during the war because the moral hazard was 
greatly reduced and when men are making money they do not want 
to burn and they watch their properties more closely. And then I 
was chairman of one of the War Industries Board committees here 
that had to do with the fire protection facilities connected with fac¬ 
tories that were engaged in the output of war materials. There were 
14,000 of those factories under this division of the War Industries 
Board and we had the power to order improvements made and they 
were made. I think that had a good effect; I think it reduced losses 
so that the companies probably have made good money during the 
last three years. 

Mr. Edmonds. That is very good. Then they took it away from 
3 ^ou in the excess profits tax? 

Mr. Evans. Yes; still- 

Mr. Edmonds. You had the pleasure of making it? 

Mr. Evans. You can look at it for a few minutes. 

Mr. Edmonds. We have a memorandum here of the British prac¬ 
tice of allowing marine insurance companies to operate with a part 
paid up capital. I do not suppose such a thing as that is possible in 
this country? 

Mr. Evans. It would not do in New York State, because the in¬ 
surance companies come under the law of financial institutions and 
we have to put up the money. 

Mr. Edmonds. Now, the board of underwriters in New York 
brought to our attention the fact of a load line. There seems to be 
rather a peculiar situation in regard to the load line. The shipping 
men do not seem to want a load line and the insurance men all seem 
to want it. The principal opposition of the shipping men seems to 
come from the coastwise people. Would the establishment of a 
load line stabilize insurance to any extent? 

Mr. Evans. I can not answer that, sir, with any authority at all, 
because I do not know enough about it. 

Mr. Edmonds. It seems to be the general impression among the 
insurance men that the establishment of a load line would be a good 
thing on the ships, in that it tends to increase the safety of the ship- 



MARINE INSURANCE. 


255 


ping. And I presume the reason the insurance men would like to 
have a load line is because it would reduce the losses. I am dividing it 
up that way to know whether it was in overseas shipping particu¬ 
larly that a load line was needed, or whether it was more needed in 
the coastwise traffic. 

Mr. Evans. That is a technical question that I can not answer. I 
only know by coming in contact with the marine men that they all 
favor a load line; that is, the marine underwriters. 

Mr. Edmonds. The marine underwriters? 

Mr. Evans. Yes. 

Mr. Edmonds. There seems to be quite a fight between you and the 
shipping men £s to whether they should have a load line or not. Up 
to the present date it seems the shipping men have succeeded in keep¬ 
ing it off ? 

Mr. Evans. Yes. 

Mr. Edmonds. Mr. Hurley raised the question about the Govern¬ 
ment insuring part of the hull risks in connection with the sale of 
ships by the Shipping Board. From what we heard yesterday it 
might be well for the board to start an insurance company and do 
all of the hull insurance. 

Mr. Evans. Yes. 

Mr. Edmonds. It seems to be very evident the American companies 
are unable to prevent the premiums on hulls going to England. They 
either have not the desire or the ability to prevent it, or they can not 
afford to take the financial loss coming from it. It may be one or all 
of those; I do not know. But Mr. Hurley was very much in favor of 
that proposition. Naturally, I am not in favor of Government own¬ 
ership ; but if the situation is going to be such that the English be¬ 
lieve they can take these premiums out of the country, I would not 
be surprised if we did not have to resort to some such remedy to 
help out the situation until they are satisfied to make the same rate for 
American hull insurance that they do for their own. 

Mr. Evans. There is only one way to bring the English to terms, 
and that would be to fight them. 

Mr. Edmonds. That would be fighting them, you know. 

Mr. Evans. I know; but I mean the American companies; if we 
can get enough of them together to go abroad and put into effect rates 
that will hurt the English in their own business, why, then, we can 
bring them to terms. You can not do it in any other way. And I 
stand ready for my companies to take a considerable loss to bring 
that about. 

Mr. Edmonds. There have been several communications made to the 
committee—and there has been reference to it here—in regard to 
some method of seeing that American shippers in foreign trade ar¬ 
range standards in some way for their packages so there will be less 
loss; in other words, to pack their goods properly so there would be 
no damage to the goods on.account of not giving the packing proper 
care and putting the goods in proper kinds of packages. Have you 
any idea how that can be done ? 

Mr. Evans. No, sir; I have not. As I say, I am not a marine un¬ 
derwriter, and I do not know anything about those details. 

Mr. Edmonds. Still this is practically a good big-sized question, 
and it would mean a reduction in losses to insurance companies. I 
just thought I would ask these questions as we went along. 


256 


MARINE INSURANCE. 


Mr. Evans. I do not doubt it is a move in the right direction, but 
personally I have no information on the subject except such as has 
come to me through general talk. I am not in a position to give 
advice. 

Mr. Edmonds. Some gentlemen have made a suggestion also that 
we establish a salvage organization around the world, taking these 
wooden ships built by the Shipping Board and putting them on 
a mud flat somewhere, as a salvage organization, so that they would 
not sink but keep above, water, and the Government provide the 
crews and have repair shops on board, so as to cut down the cost of 
insurance. 

Mr. Evans. From what I hear of the wooden ships built by the 
Government, that would be a mighty good use to make of them. 

Mr. Edmonds. It would be rather expensive, and I am very much 
afraid you would not give very much reduction in the price of in¬ 
surance on account of having this salvage organization around the 
world. I have covered pretty near all the questions I have to ask, 
and I want to go a little bit more into the legislative features to-day, 
and I am trying to propose these things we have had suggested to 
us, in a number of different ways, so as to get the opinions of the 
witnesses as to what would be the better thing to do in regard to 
the legislation we want to bring out in order to help you along. 
Now if you have anything more to say on any line we would like 
to hear you. 

Mr. Chindblom. Right there, Mr. Chairman, question number IT 
in the questionnaire related to suggestions for the promotion of the 
American marine insurance business, and your companies, at least 
some of them, made quite full answers to that question. 

Mr. Evans. Yes. 

Mr. Chindblom. It occurs to me that perhaps you would want to 
say something along these lines for the record here? 

Mr. Evans. I do not know that I can say any more than was put 
into that answer. 

Mr. Chindblom. Mr. Chairman, the answers are not to be pub¬ 
lished, as I understand it, but these suggestions—I think you have 
a copy of them—are rather concrete. 

Mr. Edmonds. These will be published. 

Mr. Chindblom. The answers to the questions in the question¬ 
naire ? 

Mr. Edmonds. Oh, no. 

Mr. Chindblom. We have here a pretty full digest of the answers 
of these companies on this question and it might be well to put that 
into the record. 

Mr. Edmonds. You mean the suggestions made in these two 
pages ? 

Mr. Chindblom. Yes. 

Mr. Edmonds. These are the suggestions made by these companies 
in that questionnaire, Mr. Evans. Suppose you submit those, and 
we will put them in the testimony. 

Mr. Evans. All right, sir; here is a copy. 

Mr. Edmonds. Suppose you read those. 

Mr. Evans. I will ask Mr. Reese to read them. 


MARINE INSURANCE. 


257 


Mr. Reese. (Reading) : 

Legislation should he passed having the following results in view: 

I. The building of sound and seaworthy ships. 

II. The operation of ships by efficient officers and crews. 

III. The proper packing of merchandise and proper loading of vessels. 

I\. Expense of operation to be such as to allow competition with foreign coun¬ 
tries. 

V. Protection of American marine insurance market. 

The following legislation is suggested: 

1. A bureau of marine affairs should be created in the Department of Com¬ 
merce, which bureau should have jurisdiction over all marine matters, including 
the various marine matters now scattered through the Departments of Com¬ 
merce, Treasury, Labor, and War. 

2. The American Bureau of Shipping should be recognized by law, with au¬ 
thority to formulate proper rules for the construction of vessels and the grant¬ 
ing of certificates to all vessels built in accordance with their rules and under 
their supervision ; to inspect the material to be used on vessels, and to put a 
load line on all vessels. 

The bill to establish load lines introduced by Senator Fletcher (S. 575) should 
be enacted amended as follows: 

At page 2, line IS, by omitting the words “ or such other corporation or asso¬ 
ciation,” inserting in place thereof the words “ composed entirely of American 
members representing American interests”; and by striking out the clause be¬ 
ginning on page 2, line 23, with the words “ Providing , however ,” and ending on 
page 3, line 2, with the words “ the Secretary of Commerce may approve.” 

3. The recommendations of the international convention for safety at sea 
should be adopted. 

4. Rules should be adopted— 

(а) Governing the handling and loading of explosives, inflammable, and dan¬ 
gerous cargoes. 

(б) Governing deck loads. 

(c) Governing navigation and operation of vessels. 

5. Statistics now collected in reports of the Commissioner of Navigation and 
Supervising Inspector General, now arranged chronologically, should be rear¬ 
ranged as follows: 

(n) Masters’ and engineers’ book arranged alphabetically, giving a list of 
every pilot, mate, and engineer, with a complete record. 

(5) Shipowners’ book, giving list of vessels owned and record of accidents 
also arranged alphabetically. 

6. A law should be enacted providing for a standard form bill of lading fixing 
the liability of carriers for shipments by water, and making it unlawful to con¬ 
tract away this liability. 

7. Marine insurance should also be regulated by and be under the supervision 
of the Department of Marine Affairs, and a law enacted prohibiting the placing 
of marine insurance in nonadmitted companies, or with foreign offices *or 
branches of foreign companies, or with American branches of foreign companies, 
unless the policies are written or recorded in this country, which insures that 
they bear their just proportion of the taxes, except on the filing of an affidavit 
that the party desiring the insurance, after diligent effort, was unable to pro¬ 
cure the amount required to protect the property owned or controlled by him 
from insurance corporations duly authorized to transact business in the United 
States, and in such a case a tax of 10 per cent fixed. The penalty for violation 
of this law should be at least $500 for every offense. 

It has been brought to our attention by various average statements that an 
enormous amount of hull insurance is written in foreign alien companies not 
admitted to do business in the United States, and in foreign-alien offices of com¬ 
panies admitted to do business in the United States, on which business there is 
no tax paid to either the Federal or State Governments. We will be glad to 
submit detailed evidence of the above fact to this committee if it so desires. 

8. The Federal revenue bill should be amended by striking out the provision 
which requires marine-insurance companies to pay a 1 per cent premium tax, , 
the marine companies now having to pay this tax in addition to all other taxes 
imposed on classes of business other than insurance. 

Mr. Edmonds. Is there any further suggestion you want to make? . 


100770—20-17 



258 


MARINE INSURANCE. 


Mr. Chindblom. Mr. Chairman, this last proposition seems a little 
startling that the marine insurance companies are required to pay a 1 
per cent premium tax in addition to all other taxes imposed on 
classes of business other than insurance. That applies to other forms 
of insurance, does it not? 

Mr. Evans. It does; yes, sir. 

Mr. Chindblom. Not only to the marine insurance business? 

Mr. Evans. All insurance companies pay that 1 per cent premium 
tax in addition to the regular Federal tax. 

Mr. Chindblom. You recommendation would go further than the 
marine insurance on that proposition? 

Mr. Evans. Yes, it would. The limitation was probably put in 
here because it was thought this committee was only looking after 
the marine insurance. 

Mr. Chindblom. Oh, yes; but if the revenue law was amended it 
could not be amended so as to relate only to marine insurance. 

Mr. Evans. We would be very grateful, sir, to have it taken off in 
all directions. I think that is proper and fair. 

Mr. Chindblom. I do not mean to say it could not be, but a good 
reason would have to be shown if that was done. 

Mr. Evans. Yes. 

Mr. Edmonds. I think possibly it could be done, but of course 
the Ways and Means Committee would want to know why that par¬ 
ticularly should be exempted, and it would be very hard to show why 
marine insurance alone should be exempted. 

Mr. Evans. It is the only line of business that is subjected to a 
flat tax in addition to the other tax. 

Mr. Chindblom. That is insurance generally? 

Mr. Evans. Yes; insurance generally. 

Mr. Edmonds. Probably it would be better to take it off of all in¬ 
surance than to take it off of only one branch. 

Mr. Evans. Yes. 

Mr. Chindblom. Except for the enormous deficit right now in the 
resources of the Government to meet current expenditures. 

Mr. Evans. That we are not responsible for. 

Mr. Edmonds. Now, Mr. Evans, do you want to say anything more 
in regard to the business ? 

Mr. Evans. No, sir. I would like to make this suggestion, that in 
back of all this effort lies the question of patriotism, the desire on 
the part of the people of the United States to build up their own 
industries. If you can instill into the public the same feeling that 
the English, and perhaps I can say the Germans, have been able to 
put into their people, why you wili bring about results quicker than 
you will in any other way. In other words, if the American people 
will favor American institutions as against foreign institutions, why 
your problem is solved. 

Mr. Lazaro. Mr. Evans, is it not a question of education mainly ? 

Mr. Evans. Yes. 

Mr. Lazaro. Our people are patriotic, but the trouble is they did 
not know much about all of this until this war broke out and we 
were face to face with what was going on. 

Mr. Edmonds. Mr. Hoover was very patriotic. He wanted all the 
insurance for the Food Control Committee placed in American com- 


MARINE INSURANCE. 


259 


parries. He was assured, I presume, that it was placed there, but I 
question very much whether a great deal of it did not go over to 
England in reinsurance. 

Mr. Evans. That is just where it went. 

Mr. Lazaro. As I understand the situation, England and Ger¬ 
many have made it their business to teach the people in the schools? 

Mr. Evans. Yes. 

Mr. Chindblom. It is a fact also, is it not, that their resources 
after all have been limited in Europe, and they had to intensify 
their patriotism for their economic purposes; whereas in this coun¬ 
try nature have been pretty lavish with us up to this time, and we 
have had the resources right at hand and have not been compelled to 
economize as they have ? 

Mr. Evans. That is right. 

Mr. Chindblom. England, for instance, has been compelled to seek 
trade upon the seas, and Germany was compelled to intensify her 
industries at home? 

Mr. Evan. Yes. 

Mr. Lazaro. I think it is a question of education more than any¬ 
thing else to educate the people to the importance of patronizing 
things at home and the great business at home, and then they will 
be patriotic all right. But they have to understand it. The public 
sentiment is there, and once they understand what they ought to 
do, they will do it. 

Mr. Evans. You have naturally to take into consideration also 
the fact that the population in this country is so mixed; that is, you 
have a good many Englishmen here and 6,000,000 or more Germans, 
people of German extraction, and people from all countries of the 
world, from whom our population is made up. And then our 
institutions have been, up to within recent years, smaller than the 
foreign companies. The English companies were larger and 
stronger. That is not the case to-day, but it was the case, so nat¬ 
urally the English companies have done their duty in this country 
almost without exception. In the Chicago fire, going back as far 
as that, and in all of our great conflagrations. Some of them failed 
to stand the gaff in San Francisco; that is, they tried to take ad¬ 
vantage of the earthquake clause and litigated the payment of 
losses, but they were beaten in the courts and had to pay in the end. 

Mr. Edmonds. If you have nothing more to say, we thank you 
very much. 

Mr. Evans. I thank you. 

TESTIMONY OF MR. WILLIAM R. HEDGE, OF BOSTON, MASS., PRES¬ 
IDENT OF THE BOSTON INSURANCE CO. AND THE OLD COLONY 

INSURANCE CO. 

(The witness was sworn by Mr. Edmonds.) 

Mr. Edmonds. Give the stenographer your name and the com¬ 
panies with which you are connected. 

Mr. Hedge. William R. Hedge. I am president of the Boston 
Insurance Co. and also president of the Old Colony Insurance Co. 

Mr. Edmonds. I know you have a statement that you are pre¬ 
pared to give us. 


260 


MARINE INSURANCE. 


Mr. Hedge. These are just little memorandums. 

Mr. Edmonds. Suppose you go right ahead and give it then, and 
we will try to eat holes in it as you go along. 

Mr. Hedge. Since I was down here in August I have had this in 
mind a good deal, and it is very complicated when you try to make 
suggestions. In nearly every suggestion you make, you run up 
against the Constitution as to how to work out a Federal statute. 
Of course, as a matter of fact, this insurance is really controlled by 
the individual States. 

There is one thing I think ought to be corrected in fairness to the 
English companies, and that is this: I do not think the business is 
sent to England because the brokers or the insured or the agents are 
pro-English; it is simply their natural course of business. If you 
go back to 50 years ago, you will find there were a large number of 
marine insurance companies in this country. Our old New England 
grandfathers were in the insurance business. They were large ship¬ 
builders and large shipowners, and they had their insurance com¬ 
panies. In fact, before they had their insurance companies they 
underwrote just exactly as Mr. McGee showed you yesterday how 
Lloyd’s started, where an individual generally took another in¬ 
dividual’s insurance. I have a policy at home where one of my 
great-grandfathers insured another great-grandfather in just that 
way. Now, when you had the Boston fire these green companies 
were writing fire business and they got tremendous losses, and a 
great many of them were impaired by the fire and put out of busi¬ 
ness. Others were so seriously injured that it took the heart out of 
the companies and gradually they have gone out of the business 
entirely. At the time the Boston Insurance Co. started, soon after 
the Boston fire, I think there were something like 20 odd com¬ 
panies in business-—New England companies—writing marine in¬ 
surance. To-day there is not one of them left. The China Mutual 
Insurance Co. was one of the last ones. In those days it was one of 
the big companies. The business in those days was the old clipper- 
ship business. Our merchants were trading all over the world and 
they sent ships all over the world, and the business in those days 
was really a banking proposition. They would take the risk, and 
when the vessel got back from the venture the premiums were paid 
and the venture closed out. In fact, in the old days they used to 
take a 12 months’ note so as to enable the vessel to make the voyage 
and then settle up; to-day we take a 6 months’ note. 

Now, with the companies practically put out of business with 
the Boston fire, those who were insured with the American com¬ 
panies on their fire risks in Boston received so many cents on the 
dollar in many cases. Your English companies cabled the funds 
right over and paid the bills right off. The result was that in the 
last 40 years there have been certain, business men who always in¬ 
sisted on an English policy. They wanted the Liverpool, London 
& Globe, the London Insurance, or the Norwich Union, or some such 
company as that, because where they had had their insurance with 
an American company they had not gotten their money at the time 
of the fire. We experienced the same thing again in the San Fran¬ 
cisco fire; the English companies paid their losses and the Germans 
did not. The consequence was the English companies have always 


MARINE INSURANCE. 


261 


made good, and there was a lack of American capital and Ameri¬ 
can companies in the business, and naturally the business gravitated 
to England. 

Mr. Chindblom. Do you know whether there was any reason, 
beyond the financial ability of the English companies, which caused 
them to pay their losses in full at both Boston and San Francisco? 

Mr. Hedge. Why, they had the money to do it and they did it; 
the small American companies had large liabilities, out of propor¬ 
tion to their assets, and they could not do it. 

Mr. Chindblom. It was almost altogether a question of ability? 

Mr. Hedge. Oh, absolutely; the integrity of the American com¬ 
panies was unquestioned. 

Now, I have looked over the insurance reports to see just exactly 
what has happened in the last five years in regard to American in¬ 
surance. You never can legislate to build up American insurance 
unless you so legislate that there is a profit in the business. Nobody 
is going to invest money in a marine insurance company for the fun 
of doing it; and if there is no profit in the business the money is 
not going to be forthcoming. 

Now, in 1913 there were 20 American marine and fire and marine 
insurance companies; in 1918 there were 62 American marine and 
fire and marine insurance companies. That practically jibes with 
your figures. Of course, you made the point yesterday that several 
of these companies were English owned, which is true. I did not 
make that distinction; in fact, I did not have the same source of 
information you did in regard to stock ownership. 

In 1913 the combined capital and surplus of the American marine 
and fire and marine companies amounted to $79,309,254. In 1918, 
the combined capital and surplus of American marine and fire and 
marine companies amounted to $249,258,113. That is almost your 
figures. That is, there was an increase in the capital behind the 
marine business of three times. That was largely due to the fact 
that the fire companies had not engaged in the marine business here¬ 
tofore, but the large volume of premium resulting from the war 
risks and the fact that it was generally understood that these marine 
companies that were writing the business w T ere making a good profit 
invited the attention of other fire companies, and they went into the 
business. Then you have also had a number of smaller companies 
start in in New York for the purpose of writing the marine business, 
all attracted by a profit in sight. There has been an increase in the 
capital of three times. 

The premiums written by the American marine and fire and ma¬ 
rine companies in 1913 amounted to $17,370,199. The premiums 
written by the American marine and fire and marine companies in 
1918 amounted to $68,886,890—four times. 

In 1913, the 20 marine and fire and marine insurance companies 
wrote 59.3 per cent of the business placed in the United States. 
The foreign admitted companies wrote 40.7 per cent of the business 
placed in the United States. 

In 1918 the 62 American marine and fire and marine companies 
wrote 62.7 per cent of the business placed in the United States; 
whereas the foreign admitted companies wrote 37.3 per cent of the 
business placed in the United States. 


262 


MARINE INSURANCE. 


You see the American business has been growing by itself. 

Mr. Huebner. Those figures, of course, Mr. Hedge, do not take 
into account any of the foreign-controlled companies ? 

Mr. Hedge. When you speak of foreign-controlled companies, 
what do you mean? 

Mr. Huebner. I mean American companies controlled abroad. 

Mr. Hedge. What companies do you mean? 

Mr. Huebner. Through stock ownership or common management. 

Mr. Hedge. It classed them as American? 

Mr. Huebner. Yes. 

Mr. Hedge. Anything that was classed by New York State, where 
they are entered on the American side they are classed as American, 
but I really know of—I think the American and Foreign Marine is 
a marine company owned abroad. The Columbia, I think, is simi¬ 
larly owned and the Queen. Those are the only three I know of. I 
am not really certain as to the Queen stock, but that is my impres¬ 
sion. Are there any others? 

Mr. Huebner. There are a number of companies. There are at 
least seven that are owned and controlled. 

Mr. Hedge. What do you mean by controlled? That was spoken 
of yesterday. 

Mr. Huebner. The seven are absolutely controlled or owned 
through stock ownership or a common management; and then there 
are a number of others that are so intimately related that the sym¬ 
pathetic relationship can not possibly be questioned although they 
have an American charter. 

Mr. Hedge. When you speak of the control by the English because 
of the connections, if you have no objection, take Mr. Chubb’s com¬ 
pany, the Federal, where there are three other companies in the 
office. Do you class that as English controlled? 

Mr. Huebner. No ; that is not a controlled company, but it would 
be very closely related. 

Mr. Hedge. Closely related— I think you would find in a case like 
that that is where the American controls the English. 

Mr. FIuebner. But in their reinsurance they place an enormous 
amount in the different companies that are represented in the same 
office. 

Mr. Hedge. Frankly now, they are entered for the purpose and 
authorized by the license of the Treasury Department during the 
war- 

Mr. Huebner. They are American companies having a charter; 
that is true. 

Mr. Hedge. So that if a company like that you class as English 
controlled, I think it is improperly classed. 

Mr. Huebner. Not as actually controlled, but very, very closely 
allied. 

Mr. Hedge. I think it is the English there that is controlled by the 
American. 

Now, it is, of course, impossible to manufacture business for the 
benefit of insurance companies, but it is possible to see that the Amer¬ 
ican companies are given preference over the foreign companies. 
The British merchant as a rule—this is practically similar to what 
Mr. Evans testified—stipulates that his insurance shall be placed with 



MARINE INSURANCE. 


263 


British companies for two reasons: In the first place, the Briton is 
always trying to build up the business of England and, secondly, he 
wants his insurance with companies that he knows all about. On the 
other hand, the American merchant, as a rule, simply looks at the cost 
and takes little interest as to whether his insurance is placed with an 
American company or not. 

Mr. Lazaro. In that connection, does not the British merchant look 
after the costs, too? 

Mr. Hedge. I do not think they do so closely. In fact, I was just 
going to read a little extract from a letter I had from the president 
of a New England company the other day which shows his views on 
that. I will read that in a minute, or right now if you prefer. 

Mr. Chindblom. Does the Englishman have any competition which 
offers better prices than he can get right in England ? 

Mr. Hedge. No; I do not think he does. 

Mr. Chindblom. Then that question does not enter in there. If 
he can do as well at home and, in addition to that, his patriotism nat¬ 
urally leads him to do business at home, that explains the whole situa¬ 
tion, does it not ? 

Mr. Hedge. Yes; but if an American company went in and offered 
a lower rate, even if you shaded the rate 10 per cent, I do not think 
you would get the business. There is one American company over 
there writing business that I know of. The other company that tried 
it quit. Our company, that I was connected with, tried to write busi¬ 
ness in England at a profit, and we could not do it. They could get 
the business that the English companies did not want, but they could 
not get the business which was profitable. 

Let me read you a little right here. This is entirely informal. 
This gentleman is president of a Canadian company, who has just 
returned from England, which might have a particular bearing on 
this matter, and I just made an extract from his letter: 

I have just returned from a trip to England, and I only wish that the marine 
business on this side was in the same healthy condition in which it is over 
there. The high cost of everything has even extended to the marine rates and 
the bulk of the policies are issued at higher rates than in prewar times, and, 
although war-risk premiums have gone and there are a certain number of 
Lloyd’s underwriters and new companies trying to keep up income by listening 
to the overtures on cut rates from brokers, yet this cheap-rate market is not 
a serious factor, although it may gradually become so. The English insurance 
brokers have not got the same control of the business in their hands as the 
American brokers appear to have, as they have to place the greater portion of 
their lines— 

And here is the important point— 

with companies or underwriters favored by the insured who are prepared to pay 
the rates which the companies or underwriters prefered by them ask. This is 
one of the reasons which makes it so hard for a new company to break into the 
English market, as probably 50 per cent of the business is given to them subject 
to its being placed with particular underwriters. 

In my experience I have known of but one large corporation in 
America that has always stipulated that all of its insurance shall be 
placed with American companies, and that is the Beamish Bros. Bag 
Co. They have made that a rule of their office, that their insurance 
shall always be placed with an American company. Outside of them 
I do not know of a single corporation that takes that stand. 


264 


MARINE INSURANCE. 


Mr. Chendblom. If the individual corporation that desires the 
insurance makes that stipulation, the broker naturally will not quote 
to him any competitive rates ? 

Mr. Hedge. He might quote competitive rates, but on an even basis 
the American company would get the business, or on a slightly higher 
basis the American company would get the business. But you do not 
get that to-day. The American merchant to-day will accept an Eng¬ 
lish policy without any question. He does not look to see whether it 
is placed with the Hartford, the American Mutual, the New England, 
the Boston, or the Federal; he takes the policy the broker hands him 
w T ho has quoted the rate. What the American public needs is to be 
educated up to patronizing the American companies, and your report, 
think, if published and well circularized in the United States is going 
to be a mighty good start right along that line. I think you will have 
a few merchants then who will start to give if consideration. You 
take 10 people whom you meet on the street and you ask them where 
their insurance is placed, and probably there is not 1 in the 10 who will 
know whether his insurance is placed with American companies or 
with foreign companies. 

Mr. Lazaro. Is there an effort made by the people engaged in this 
business in this country to educate the business people here ? 

Mr. Hedge. I think we are open to criticism there. I do not think 
we do, and I think we should. I think this information you give us 
now gives us an opportunity to do it. 

Mr. Lazaro. Don’t you think it should be done ? 

Mr. Hedge. Certainly. 

Mr. Lazaro. Don’t you think that should come from your people 
first? 

Mr. Hedge. Of course, if we do it, it looks like it is for selfish rea¬ 
sons, and that merely discounts the good faith, but I think the con¬ 
gressional information such as this, the publishing of this information 
and widely circularizing it, would do more good than anything we 
could do in pushing it for our selfish ends. 

Mr. Lazaro. What is the name of that company you just mentioned 
that- stipulates its insurance shall be placed with American com¬ 
panies ? 

Mr. Hedge. The Beamish Bros. Bag Co. 

Mr. Lazaro. How are they going to know ? 

Mr. Hedge. They are one of the biggest importers in the country. 

Mr. Chindblom. That is the company that always stipulates that 
its insurance will be placed with American companies? 

Mr. Hedge. Yes. 

Mr. Lazaro. I want to know how they know that it is ? 

Mr. Hedge. They are tremendous importers of burlap from Cal¬ 
cutta. They are one of the big houses. I was talking of fire insur¬ 
ance when you asked the question. I think the merchant as a rule 
probably knows where his insurance is placed. But in fire insurance 
the ordinary man does not ask about the company at all, and I do not 
believe there is 1 man in 20 you would run across who could tell you 
in what company his home is insured. They do not take any interest 
in it, and they can get it just as cheaply—you can insure your house 
just as cheaply with an American company as you can with an Eng¬ 
lish company. The price is exactly the same. 


MARINE INSURANCE. 


265 


Mr. Edmonds. As a matter of fact, all fire premiums are the same. 

Mr. Hedge. Practically. Your marine rates are practically the 
same. 

The question came up yesterday in regard to making your rates. It 
is all done on the judgment and experience of the underwriter. I 
think that is probably one reason why some of the fire companies 
have not taken up the marine business before, because they have not 
got the trained men. You have to have a man who has grown up in 
the marine business. When the risk is offered to the company, you 
have, perhaps, had a similar risk offered six months ago, and you 
may have written 50 such risks and you have your statistics and know 
what a certain line of business costs—you have been writing hides 
from the River Plata, subject to average, and you will know what 
your partial losses have cost you and what your total losses have 
cost you, and you will know what the business has cost. So if a man 
comes in and asks you to insure a shipment of hides, you look at the 
vessel and know it is an A-l vessel in every respect, and you know 
what you charged before and made a reasonable profit, and you 
charge the same rate. If it is a poorer vessel, you charge him more. 

Mr. Edmonds. I listened yesterday to Mr. Rush and you, and I 
think Mr. McGee virtually made the same statement which was made 
before, that nobody made rates, but the general practice produced 
rates that were similar. I almost got to believe in mental telepathy 
after I heard you gentlemen. 

Mr. Hedge. We were all testifving to facts. 

Mr. Edmonds. Sure. But I say I almost got to believe in mental 
telepathy after I heard you gentlemen. 

Mr. Hedge. I noticed that you suggested yesterday certain gentle¬ 
men had gotten together the day before as to their testimony to be 
given here. I want to say that 1 have not discussed any testimony I 
was to give with anybody. 

Mr. Edmonds. No. 

Mr. Hedge. It was entirely independent. 

Mr. Edmonds. It was suggested to me owing to the fact that a 
meeting had been held and suggested answers to the questionnaire 
had been made, which we had before the questionnaires came in, and 
also that we were going to be presented with the brief, the first para¬ 
graph of which I could have read to you yesterday when you started to 
read it- 

Mr. Hedge. That was a committee report. We understood that you 
wanted an association report. 

Mr. Edmonds. Yes; we did want it, but it was rather peculiar we 
had it ahead of time, and also the suggested answers by the New York 
association to the questionnaires that were sent out by the associa¬ 
tion to the different insurance people. 

Mr. Hedge. It w T as very difficult to answer some of your questions, 
and there were certain suggestions made to different members as to 
how to answer them. I think—as a matter of fact I believe—we an¬ 
swered ours before we got the suggestions. 

Mr. Edmonds. Probably you did. Some did; others followed the 
suggestions fairly well. Naturally it would be supposed you had 
gotten together, and I wanted to save time by having one man express 
the sentiment of the group if that was so. 



266 


MARINE INSURANCE. 


Mr. Hedge. Shall I proceed, sir? 

Mr. Edmonds. Yes. 

Mr. Hedge. The United States Government can assist the Ameri¬ 
can marine insurance companies, first, by pointing out to the Ameri¬ 
can merchant the advisability of building up the American marine 
insurance market; secondly, the United States Government can set 
the example by giving preference to the American insurance com¬ 
panies. Before the war the United States Government had but little 
insurance to place, all that I know of being vessels under construc¬ 
tion for the Navy Department. Practically the bulk of this insurance 
was placed with foreign companies, and no preference that I know of 
was ever given to American insurance companies. The Federal Gov¬ 
ernment should stipulate for its departments that the American com¬ 
panies should be given the preference in every.instance; in the second 
place, to those foreign companies that are entered and licensed in 
the United States; and, thirdly, policies should be accepted in un¬ 
licensed companies only when the insurance can not be placed in 
this country at reasonable rates. 

When it comes to passing laws that would force an American to 
insure with American companies, you are taking a stand that is not 
exactly American, and a good many American merchants would 
resent it, and it is one that is very difficult to enforce; also, the 
object of your committee is to assist in building up and maintaining 
American commerce and the American merchant would probably 
resent any restriction of the free world-wide market that he enjoys 
to-day in the placing of marine insurance. I won’t go into that, be¬ 
cause that has already been taken up and the testimony shows how 
it goes. 

Mr. Edmonds. Of course, we never had any idea of passing any 
law that would require an American to insure in an American in¬ 
surance company. That would be the height of folly. 

Mr. Hedge. Furthermore, by the Supreme Court’s decision, no tax 
can be placed on exports. It would hardly be fair to the American 
merchant to place an oppressive tax on his insurance on imports if 
he is to go out and compete with the merchants of other countries for 
the sale of the finished goods; but it is right and it is in the interest 
of this country that a fair and reasonable tax should be collected 
on all insurances placed with unauthorized companies to an amount 
to equalize the tax that such insurance would contribute to the sup¬ 
port of the Federal and State Governments if placed with American 
or authorized companies. 

At the present time, a tax of 3 per cent is collected on insurance, 
other than on exports, placed with unauthorized companies. Ex¬ 
amination of the New York insurance reports shows in 1918 that 
the taxes paid to the State, not including Federal taxes, on marine 
and inland premiums by 53 American companies (for the other 
companies it was not divided), were as follows: Forty-four Ameri¬ 
can fire and marine companies, 2.133 per cent; 9 American marine 
companies, 1.841 per cent—an average of 2.084 per cent. The average 
State tax for all companies, fire and marine, figured up, I think, 
to 2.265 per cent. As a matter of fact, however, these percentages 
are probably lower than the true percentages, because there was "an 
increase in the marine premiums in 1918 over 1917; also, the State 


MARINE INSURANCE. 


267 


taxes were paid on premiums that included the export premiums. 
The real taxes should figure out, most conservatively, for fire and 
marine premiums, about as follows: State taxes, on premiums, 2 per 
cent; licenses, fees, etc., 0.45 per cent; total, 2.45 per cent. Federal 
tax, a 1 per cent tax on premiums, excluding exports, which, say, 
is 25 per cent of the business, which figures 0.75 per cent; corpora¬ 
tion tax, which figures $1 per thousand capital, one-tenth of one per 
cent—giving a net result of 3.30 per cent. 

Assuming of the insurance placed abroad with foreign companies 
that.25 per cent is on exports, and there is no way I know of for telling 
what proportion is on export cargo, an equalizing tax on such insur¬ 
ance premiums (insurance on exports excluded) would be one-third 
greater, which would give you a net result of 4.40, where we are taxing 
3.30 at the present time. That does not take in any allowance for the 
tax that would be paid as an income tax or an excess-profits tax. 

Mr. Thacher. May I ask for information whether those percent¬ 
ages are based on gross premiums ? 

Mr. Hedge. No; these are on net. 

Mr. Chindblom. Does it include fees paid for municipal licenses, 
if any? 

Mr. Hedge. Yes; that comes in under your State. Your 0.45 would 
take care of that. For different companies they vary very greatly. 
It is hard to explain why there is a difference in taxes. With our 
company, for instance, we are entered in almost all the States for 
both fire and marine. Now, if we have to pay an entrance fee of $200, 
for doing both fire and marine, half of that is charged to marine and 
half of it to fire. If we are doing both classes of business, we cut 
that right in half and charge half of it to each class of business. The 
fees in some States amount to a very considerable sum. Maryland, 
I believe, collects a tax of $400. You see, Maryland is a compartively 
small State, and it amounts to quite a little tax. If you are doing 
both classes of business, both marine and fire, you cut it right in half 
and charge an equal amount to each department. 

Mr. Chindblom. That is, New 7 York companies? 

Mr. Hedge. Yes. 

Mr. Edmonds. If you pay that, then they don’t collect any income 
tax in the State? 

Mr. Hedge. Oh, yes, they do; every State collects an income tax. 

Mr. Edmonds. Besides your annual license? 

Mr. Hedge. Besides our annual license. Then you pay fees for 
filing your statement, and you pay a fee for the license of your agent. 

Mr. Chindblom. And for your examination? 

Mr. Hedge. No; for the license of the agent—simply for issuing it. 

Mr. Chindblom. Do you pay an extra fee for the examination of 
jmur company? 

Mr. Hedge" You do when you enter a State which you have not 
been entered in before—you pay a fee for the examination as a rule. 

Mr. Chindblom. When the annual examination is made, do you 
have to pay a fee then? 

Mr. Hedge. The annual examination is usually made by your home 
State. In fact, they do not have an annual examination. 

Mr. Chindblom. You send in your report? 

Mr. Hedge. Yes. 

Mr. Chindblom. Do they charge a fee for receiving your report? 


268 


M AIU NE 1XSUIIAX CE. 


Mr. Hedge. For filing your report, yes. There is a fee you pay 
each year to each State for filing the different reports that are re¬ 
quired. But under the Massachusetts law, where the insurance com¬ 
missioner must make a detailed examination and audit of each Massa¬ 
chusetts company once in three years, that is charged up to the 
State. Occasionally you have some Western State send on an auditor 
to examine your books, and in those cases they generally bill it up 
to us. 

Mr. Chindblom. That is what I had in mind. I overlooked the 
fact that it was confined to domestic companies in the various States— 
that annual examination. 

Mr. Hedge. I do not know about that, whether the foreign company 
is examined or not. Yes; they must be. 

Mr. Chindblom. By the Massachusetts department, for instance? 

Mr. Hedge. These departments, in the old days, used to have a 
multiplicity of examinations and it was a nuisance and an expense and 
in fact was an imposition, and now the departments have worked it 
out together, so that I think Massachusetts will take a New York 
examination and New York will accept an examination made by 
Massachusetts; and in that way they have eliminated making the 
same examinations. 

Mr. Edmonds. The admitted foreign companies are examined just 
the same as you are and have the same expenses to undergo ? 

Mr. Hedge. Yes; I think they do. I took 10 of the larger Ameri¬ 
can companies writing a marine business, and the taxes paid in 1918 
showed as follows: Average State tax, 2.45 per cent; Federal tax, 
5.91 per cent, making a total tax of 8.36 per cent of the premiums 
written. 

Mr. Edmonds. Is that gross premiums or net ? 

Mr. Hedge. That is on the net premiums. 

Mr. Edmonds. That really means- 

Mr. Hedge. It means the original premium less any cancellations, 
and less any reinsurance. That is, if we wrote a premium of $1,000 
and reinsured a half of it, that would reduce it to $500; and if the 
policy were subsequently canceled and we returned $100, the net 
premium would be $400. 

Mr. Edmonds. How about agents’ commissions; do you take 
that off? 

Mr. Hedge. No; that is not taken off. The English companies, I 
think, deduct that. 

Mr. Evans. That is admitted reinsurance companies. 

Mr. Hedge. Admitted; yes. 

Mr. Evans. Foreign reinsurance in admitted companies? 

Mr. Hedge. Yes. 

Mr. Edmonds. The unadmitted companies, of course, have no taxes 
at all. Where you reinsure in a nonadmitted company, they have no 
office here? 

Mr. Hedge. No. We pay the tax on that, and of course we do not 
get any credit on it. If you write a risk in New York and pay a 
2 per cent tax on that and you reinsure half of that in England, we 
would still have to pay the 2 per cent tax in New York State. 

Mr. Edmonds. If you did that, then it would probably be offset 
by the saving you can get in the way of a smaller premium from the 
nonadmitted company? 



MARINE INSURANCE. 


269 


Mr. Hedge. In the way of reinsurance? 

Mr. Edmonds. Yes. 

Mr. Hedge. We do not figure reinsurance at a given rate. Mr. 
-Rush testified yesterday he did that, but we never offer a risk on an 
American merchant at any rate other than what we have received 
ourselves. When we cable England, we just generally cable over the 
business and they fix their own rate. Sometimes it is more and some¬ 
times it is less. On hulls it is always the same. But we do very 
little business with England. I think our statement showed a very 
small percentage. In fact, we place all that we can in this country 
with authorized companies. 

Mr. Edmonds. There is, however, a difference in the commissions 
allowed for writing for different companies—in reinsuring with dif¬ 
ferent companies ? 

Mr. Hedge. You mean under contract? 

Mr. Edmonds. In other words, some companies will pay on certain 
insurance a percentage of, say, 25 to 30 per cent, insurance possibly 
that did not cost here over 20 per cent. Is not that true? 

Mr. Hedge. I think it is very likely. We have no such contracts 
as that. 

Mr. Edmonds. There are contracts of that kind, I think, where 
the insurance company does profit itself by reinsurance. 

Mr. Hedge. Of course, the fire business, there is a good deal of 
that reinsured, because reinsurance is quite a feature there. 

Mr. Edmonds. And there is a profit to the company that does the 
reinsuring ? 

Mr. Hedge. He gets the difference between the commission he has 
paid and the commission he receives, and then, of course, he has to 
stand any tax he has paid on that business, for which he gets no 
credit when his taxes are figured. 

Mr. Edmonds. And those contracts vary because some of them run 
up as high as 28 and 30 per cent. 

Mr. Hedge. I can not give you any information about that. In 
regard to the question of expenses, the difference between the ex¬ 
pense of an American company and an English company has come 
up a number of times. I do not know what the expense of an Eng¬ 
lish company is. I imagine that could very readily be secured by 
your committee through the consular department over in England; 
they could get you the statements. But there was a copy of the 
Eastern Underwriter that I happened to be reading on the train 
coming over, and there they quoted the expense of 18 of the marine 
companies of 10.7 per cent, and apparently that is on the premiums 
less the commission. That is, they call it the net premium after 
they have taken off the commission. Now, it costs more money 
than that to run a marine company in this country. 

Mr. Edmonds. In looking at the report of the published state¬ 
ments in the books that publish statistics on insurance companies 
it did not seem to me that there was very much difference between 
the expenditure, as they call it, running around 38 or 40 per cent of 
the English company and the American company. 

Mr. Hedge. That is a licensed English company here. 

Mr. Edmonds. Of course, that would be a licensed English com¬ 
pany. 


270 


MARINE INSURANCE. 


Mr. Hedge. But I was referring to the question that was brought 
up before of the difference between the company writing business 
here in this country and the company writing business in England. 

Mr. Edmonds. That 10 per cent could not be their expenditure, 
could it ? 

Mr. Hedge. No ; that is on top of their commissions and all. 

Mr. Edmonds. It must be on top of their commissions. 

Mr. Hedge. Oh, yes; that is the way that is there. 

Mr. Edmonds. And that 38 per cent took in the tax ? 

Mr. Hedge. That is everything. 

Mr. Evans. The tax as well ? 

Mr. Hedge. Yes; and your tax is quite a large item. And, of 
course, clerical hire is higher here than it is in England. AVe do not 
have the large volume of business, and the minute you get a big vol¬ 
ume of business youj cut your fixed charges. AVe have seen that 
very clearly in our company. AVe have cut our fixed charges ma¬ 
terially. That big premium account you can write with the same 
material about you that you already have in the office and you cut 
the amount of your salaries one-half and you cut the president’s sal¬ 
ary one-half, and so forth. 

Mr. Edmonds. That is a great advantage, then, in writing all 
kinds of insurance, because it gives you a chance to cut your over¬ 
head very greatly? 

Mr. Hedge. Yes; and also as Mr. McGee said, I think, London 
is the center of insurance of the world. It floats in from all coun¬ 
tries, and the business that comes to them by cable they have no 
expense in securing it other than the commission that is allowed to 
the broker. 

Mr. Edmonds. That is the reason we are so anxious to get you 
over here now. AVe are the financial center now instead of London, 
and we want to be the insurance center. 

Mr. Hedge. AVe are entirely in sympathy with that point of view. 
Now, the American insurance companies have not been standing still. 
There was formed the American-Foreign Insurance Association of 
17 or 18 companies for the purpose of writing insurance in foreign 
countries. That association of companies is at present writing fire 
insurance in one or two countries. I think that we have already 
accepted risks in Australia. I am not sure, but I think in Argentina 
we have already got started. If not, we will be very shortly. Then 
some companies are going to write marine business. AVe are up 
against a certain proposition there that I think your suggestion with 
regard to the AVebb-Pomerene law may be a very valuable one. AVe 
are required in those different countries to put up large deposits. 
If an American company puts up a deposit in a foreign country, 
that affects their statements at home, and we have appointed a com¬ 
mittee, I think, just to take up this matter of making deposits. AVe 
were contemplating forming a securities company under the laws of 
Delaware, by which the insurance companies should own the stock 
and which corporation in turn should loan its assets to the insurance 
company that entered Argentina—in other words, it would loan 
enough .money for it to make its deposit. And instead of all the 
companies entering the individual fields, the proposition is that 
possibly one or two or three of the companies will enter Argentina, 


MARINE INSURANCE. 


271 


another group will enter Australia, another group will enter Japan, 
and so forth. And then this business, when it is received here in 
New York, will be parceled out as reinsurance to all the members, 
according to the agreement on which we have all gone in. One took 
a 10 per cent interest, another a 20 per cent interest, and so forth, 
according to the amount the company was willing to assume. So 
that we are branching out now to do just exactly what you want. 

But I think your suggestion last night in regard to a law that will 
enable us to form a corporation in the District of Columbia may be 
just exactly what we need in handling that situation, because it will 
not only give us the legal means of forming the corporation, but 
what we have to take into consideration at all times in connection 
with branching out in new classes of business is the laws of the 
individual States; and if we have a corporation formed under the 
Federal law it may be just the thing we need to overcome the ob¬ 
jection of some local State insurance commissioner in regard to treat¬ 
ing the deposits in that way. 

Mr. Edmonds. Would they object to an insurance company in¬ 
vesting a portion of its surplus in a company of that kind? 

Mr. Hedge. I do not think that they would. I do not quite see 
how they can. Of course, that is what would be done. 

Mr. Edmonds. The surplus can be paid out by the company as a 
dividend at any time? 

Mr. Hedge. Oh, yes. 

Mr. Edmonds. You have your reinsurance or insurance surplus 
which you have to keep under the law ? 

Mr. Hedge. That is the reserve. 

Mr. Edmonds. That is the reserve. Then you have a surplus which 
you have not paid out in dividends, but which you could pay out 
in dividends if you so desired? 

Mr. Hedge. Yes, sir. 

Mr. Edmonds. If that surplus was to be taken out of these com¬ 
panies and reinvested and held as a company investment, would 
that be a portion of your surplus? 

Mr. Hedge. I am more familiar with the Massachusetts law in 
regard to investments that way than I am with other States, naturally, 
and I know there is nothing in the Massachusetts law to prevent our 
holding stock in that corporation. Whether there is in New York 
or not I do not know. 

Mr. Thacher. Yes; there is. 

Mr. Evans. The American companies have got to learn the foreign 
insurance game, and they are seeking to learn it through a combination 
policy. For instance, my company—the Continental, I think, is the 
company that has been entered in Australia and also in New Zealand— 
we intend, no matter what the other companies do, to have our own 
branches. We know it is going to cost us some money to get them 
planted, but we are going to plant them individually. In the mean¬ 
time we are going pretty slowly and pretty carefully on our own 
hook and learning from this combination of 17 companies that Mr. 
Hedge speaks of. We will never succeed in doing any great amount of 
business through one organization, in my opinion; I think we ought 
to have several. v 

Mr. Hedge. It has this advantage: We have spent something over 
$50,000 collectively in paving the way, so we are going ahead. Now, 


272 


MARINE INSURANCE. 


in connection with this suggestion of yours last night, if we owned 
stock in the corporation, of course, that would take that stock out of 
our invested capital. Do you think legislation could be so framed 
that such a* corporation could be organized so that it would not impair 
the invested capital of the companies ? 

Mr. Edmonds. Just repeat that again. 

Mr. Hedge. If we owned stock in a corporation, the dividends from 
that stock not subject to tax under the income-tax law, and therefore 
our invested capital under the law reduced by the proportion that 
that stock bears to the assets of the company—what I was wondering 
was this: If we go ahead, or if you go ahead, with legislation author¬ 
izing the formation of such a company, it seems to me it would be 
advisable and perfectly practicable to so arrange it that in the cor¬ 
poration organized for that purpose the stock held by the insurance 
company should not reduce its invested capital. In other words, under 
the present law we Avould be penalized for owning such stock. Don’t 
you agree with me on that ? 

Mr. Thacher. Yes. 

Mr. Edmonds. You would be penalized by the State authorities? 

Mr. Hedge. No ; under your Federal tax law. 

Mr. Edmonds. In other words, you do not want the company to pay 
two taxes on virtually the same money ? 

Mr. Hedge. That is it, exactly. 

Mr. Edmonds. I get the point there. 

Mr. Hedge. You see, our company, for instance, has $12,000,000 of 
assets, and if we were to own $6,000,000 of municipal bonds and cor¬ 
poration stock, our invested capital is cut right in half. And so, if we 
put more capital into a corporation of this kind it would simply 
increase the amount of deduction from our invested capital. 

Mr. Edmonds. I do not know exactly whether that could be ar¬ 
ranged, but it could be looked into, and it is a suggestion worth while 
looking into. 

Mr. Hedge. Yes; I think that would be advisable. I think I am 
chairman of the committee that has that special matter in mind. It 
has just been put up to me, and I have referred it to our counsel to go 
over certain propositions. I am going to take it up with him some 
time next week, and, if you would care to have me do so, I would like 
to discuss that with other members of the committee and then try and 
give you a little more definite idea just what we think would be right 
in order to assist us in the very work we want to do and in the work 
Amur committee wants us to do. 

Mr. Edmonds. I think this, that the result will be Ave will frame up 
some kind of practical suggestions, cutting out some we have made 
that have been of no value, and inserting some others that have been 
made that are of some value, so that Ave can suggest a line and say, 

“ We will do this and Ave Avill do that,” not in any big drawing up of 
the items of it at all, but just the broad idea. 

Mr. Hedge, Yes. 

Mr. Edmonds, And then I think you gentlemen Avho have been 
particularly interested in this—Ave will consult Avith you again and 
find out whether that would not meet your general vieAvs, because 
there have been a number of opinions expressed, and we have to look 
at many sides of it. 


MARINE INSURANCE. 


* 273 


Mr. Hedge. Surely. 

Mr. Edmonds. And after we get it all arranged, we can talk that 
matter over between three or four of us and your committee and some 
of your people, and Mr. Thaclier is a very valuable man in insur¬ 
ance, I understand- 

Mr. Hedge. Yes; he is. 

Mr. Edmonds. And we can talk that all over in the committee to¬ 
gether and after we decide such a suggestion is good, the legislation 
framed afterwards in connection with that could be very easily ar¬ 
ranged for. 

Mr. Hedge. That is first rate. Your committee is working in 0111 ' 
interest, just exactly as we would want to work it, and we have both 
tackled a very difficult proposition. 

Mr. Edmonds. That is the kind of thing we like down here; the 
more difficult, the better we like it. You notice the railroad busi¬ 
ness, we have been working on that for three months now, trying to 
find a solution of that, and I do not believe we have found it yet. 

Mr. Hedge. Now, Mr. Chairman, when you boil it down, the real 
things that T think you can do and should do, outside of this cor¬ 
poration in Washington, I believe this could be done, that you should 
increase the tax on the export insurance to equal the taxes paid by 
United States companies. 

Mr. Chindblom. How can you reach that? 

Mr. Edmonds. That has been testified to, how can you reach it? 

Mr. Hedge. You are collecting 3 per cent to-day. 

Mr. Edmonds. Was not that declared illegal? 

Mr. Hedge. I never heard it was. 

Mr. Thacher. Yes; the Treasury Department is instructing not 
to collect the export tax. 

Mr. Hedge. That is news to me. I know a lot of brokers who have 
been paying it. 

Mr. Thacher. It is unconstitutional to collect an export tax. 

Mr. Hedge. Oh, not on the export, not on the premiums that are 
paid on insurance exported. I was using your phraseology of the 
export; you have been speaking of export insurance; that is, insur¬ 
ance sent to the other side. You can not under the Constitution 
collect a tax on premiums on exports, but you can collect a 3 per 
cent tax and you are now doing it on all premiums other than ex¬ 
ports. 

Mr. Edmonds. But you must really collect the tax. Now, what 
was your suggestion with regard to this tax? 

Mr. Hedge. Mv suggestion is that the 3 per cent, tax you are now 
collecting be increased to equalize the tax paid by the United 
States companies, so as to put us on an even basis; and, Secondly, 
prohibiting the writing by foreign companies entered in the United 
States of Government business—the writing of Government busi¬ 
ness by such companies other than through American agents. In 
other words, it is not right for a foreign company to come in here 
and write fire business and then write marine business for the Gov¬ 
ernment. If they come in, let them write marine business and pay 
the tax over here just the same as any other entered company. And 
particularly is it wrong for a marine companv to come in here and 
write marine business and not to write all classes of marine busi¬ 
ness, and to take, we will say, hull insurance and write that at their 

160770—20-18 



274 


MARINE INSURANCE. 


home office. That is absolutely wrong. They come in here and get 
the benefit of our laws and of our protection and they should do all 
of the business here and contribute toward the support of the States 
and the Federal Government just exactly on all the classes of busi¬ 
ness they write as they do on any one. 

Mr. Edmonds. Would your Boston or New York insurance au¬ 
thorities allow a company that wrote all kinds of insurance in Eng¬ 
land to come over here and write all kinds of insurance? 

Mr. Hedge. No; but I am referring particularly to marine and 
fire. I do not know that any State would allow a company to come 
in here and write every class of insurance. The history of legisla¬ 
tion in this country has been this, that New York State allowed a 
company to write fire business which was allowed to write marine 
business, and then they had their other casualty and life. Massa¬ 
chusetts used to allow a company that had $200,000 to write fire, 
and if it had $300,000 to write marine, and if it had $300,000 to write 
fire and marine. Then they recodified the law. There were no hear¬ 
ings that I know of, but they recodified the law and somebody drew 
a pencil through and said $200,000 to write fire, and $300,000 to write 
marine. Subsequently I was able to get the law amended there so 
that if you have $400,000 you can write fire and marine. And with 
that are a number of so-called allied lines. You can write sprinkler 
equipment, war risk, bombardment, and sprinkler leakage. And 
then you have the casualty lines and then the life. In my opinion, 
all of our State laws should be amended so a company, say with a 
million dollars, could write any class of business that it wants to 
other than life. I think the life should be kept entirely separate 
from the effects of conflagration, and the effects of explosion and 
bombardment; but I see no reason, provided it has a sufficient guar¬ 
anteed capital, say a million dollars, why it should not write every 
class of business. 

Mr. Edmonds. I think your argument is very well there. I do not 
see any reason why a company should not write for all lines of 
casualty, accident, automobile, or any insurances like that, because 
it certainly allows a company to expand its lines. 

Mr. Hedge. Take automobile insurance, we are particularly inter¬ 
ested in that because we really started that business in this country, 
and we would gladly write the liability insurance with a portion of 
the automobile business provided the law allowed us to do so; but 
we do not feel like going out and organizing a liability company for 
the purpose of writing that one class of business, because when you 
enter these different States you would have these admission fees for 
the liability company, and the volume of premium writing and the 
liability incurred for that one class of business would make^that one 
class of business so high that it is prohibitive. But if we could 
write, as the Boston Insurance Co., both classes of insurance in the 
different States, we would be glad to attach the liability insurance 
to our policy right off. 

There were two or three things that came up yesterday which I 
would like to make a little clear, if you have the time. In regard to 
these fees paid insurance departments, we not only pay the fees which 
pay the bills for running those departments, but they are actually a 
source of profit in themselves to the individual States. And on top 


MARINE INSURANCE. 275 

of that we pay a 2 per cent or a 2-J per cent tax, and the fees more 
than take care of the insurance department’s expenses. 

Mr. Edmonds. Does that prevent pinch bills in the legislature? 

Mr. Thacher. It is part of the State revenue. 

Mr. Edmonds. Pinch bills are part of the State revenue. 

Mr. Thacher. Oh, no. 

Mr. Hedge. What is a pinch bill ? 

Mr. Edmonds. It always seems to be very prolific source of legis¬ 
lation when ever the legislature of the State meets, to have a great 
number of bills introduced to regulate insurance, and then all of 
them disappear by the end of the session. What is the reason for 
that ? 

Mr. Hedge. I get your point, but that is not the explanation. The 
explanation of that is that it is a tendency of the American public, 
if they get disgruntled with anything, to go to the legislature and 
ask for laws to correct it. And I have been before the Massachusetts 
legislative hearings when those bills came up and the man who 
introduced the bill never took interest enough to come before the 
committee and argue for his bill. Some individual who has had 
a loss which was not paid under the policy which he has thought 
ought to be paid, or if he got $100 when he thought he should have 
gotten $125, then he gets somebody to introduce a bill. But there are 
very few legislative insurance bills introduced that are of value. 
You have a repetition of bills. I have seen in the Massachusetts 
legislature what we call the valued policy bill for four years, intro¬ 
duced year after year, and we have had to go up there and fight it 
and explain what it means, and why it is introduced, and yet it 
comes up again at each session. 

Mr. Edmonds. In some of the newspapers there is mention of 
what they call pinch bills. I do not know what they are, but they 
evidently pinch. 

Mr. Hedge. They do not pinch the insurance companies. 

Mr. Edmonds. They would if they were passed? 

Mr. Hedge. Well, yes. 

Mr. Edmonds. Of course they would. 

Mr. Hedge. Surely. 

Mr. Edmonds. Still if you folks have a nice way of doing it, by 
just putting up your premium, you could get it back any how. 

Mr. Hedge. Now, that is not so easily done. We have had, as 
Mr Evans told you, that 10 per cent surtax and it was forced right 
off. As a matter of fact, you know—as I started out to say you have 
to make a profit if you want the insurance business and the insurance 
companies in this country to grow, and that is what some of these 
insurance commissioners do not seem to realize, and that the insur¬ 
ance companies not only have to pay their taxes, expenses, and 
losses, but have to have something over to pay the stockholders if 
they want to keep those stockholders in the business, and if they 
want to get new companies started. Of course, also, you always have 
the chance of a big conflagration or a very bad year in the marine 
business. I do not believe there is a dollar of profit in writing ma¬ 
rine insurance to-day—strictly marine insurance—because the com¬ 
petitive rates are so low and the expenses are so high. And I can 
not see any inducement to-day for the man to put up a million dollars 
to go into’ the marine insurance business. 


276 


MARINE INSURANCE. 


Mr. Edmonds. Would that be true if he confined himself to cargo 
insurance ? 

Mr. Hedge. I think it would. 

Mr. Edmonds. Would it be true if he just took a lot of builder’s- 
risk insurance? 

Mr. Hedge. The builder’s risk does not amount to a hill of beans. 
In your statistics yesterday you spoke of the small proportion of 
builder’s risk written to the total volume of premiums. The volume 
of premuims in your builder’s risk is small, very small, indeed. We 
are writing to-day more or less builder’s risk on schooners building 
in Maine, but there has not been any builder’s risk on schooners 
building in Maine to amount to anything to just before the Spanish 
War. You know how little shipbuilding there has been in the coun¬ 
try as a whole? 

Mr. Edmonds. Of course the Shipping Board, writing their own 
insurance, has cut all the hulls they are building, I presume, out of 
anything of that kind? 

Mr. Hedge. Certainly. We started writing Shipping Board ves¬ 
sels and then they took that stand they would all be reinsured, and 
in fact they had the insurance that was written canceled, ancl put 
in the Shipping Board fund. 

Yesterday I judge you felt that rebates were unlawful and not 
proper in marine insurance. The law of Massachusetts specifically 
provides that the law as to rebates shall not apply to marine insur¬ 
ance. I was under the impression the New York law was the same. 
In the old days the rates used to be figured 1 per cent less 20, or 2 
per cent less 20, and the business was all written that way. To-day, 
on the Pacific coast, you commonly see a rate of 1 less 10 or one-half 
less 10. In fact the big fleet insurance, I think, is placed that way. 
The English rate is a rate less 5 and 10, a commission and a dis¬ 
count to the assured, but that has not been met on this side. We 
allow 10 and 5, or 14|. It figures about the same, and I think you 
will find that the brokers on the large fleets very generally return 
part of that commission.in the form of a rebate to the assured. 

Mr. Edmonds. You allow the cutting of commissions, then? 

Mr. Thacher. We have not anything to do about it. 

Mr. Edmonds. The law allows it? 

Mr. Hedge. Yes, sir; the Massachusetts law certainly does, and 
I am under the impression the New York law does. 

Mr. Edmonds. Do you think that is a good thing for the business? 

Mr. Hedge. No, sir; I do not, because I think it works this way, 
particularly on cargo: Suppose that the rate is one-half of 1 per 
cent and you allow 10 per cent commission to an agent and he re¬ 
bates a half of that and makes a rate of 47.5 cents to his assured and 
gets the business away from another company. Now that other com¬ 
pany immediately figures his rate is 47J cents and it puts down its 
rate to 474 cents to meet it, and there you have a reduction in rates 
resulting from it. 

Mr. Edmonds. In other words, it enables the broker to bat one com¬ 
pany against another, and foreign companies against the companies 
here, by stating his rate is so and so when it is not? 

Mr. Hedge. He make a rate (the insured does not care to go into 
the details) of 47^ cents, probably; he does not bill it 1 less 10. 


MARINE INSURANCE. 277 

Mr. Edmonds. The natural result would Be the broker thinks the 
other company made that rate? 

Mr. Hedge. Yes. He comes down in his rate. 

Mr. Edmonds. Is it necessary for your protection against foreign 
companies, or admitted companies, if you want to compete there, to 
have the agent or the broker be a free lance like that in cutting his 
commission ? 

Mr. Hedge. It assists in competition; yes. 

Mr. Edmonds. It assists in competition? 

Mr. Hedge. Yes. 

Mr. Edmonds. Therefore, just at the present stage of the insurance 
business, it is not a bad thing then to have the broker work this way ? 

Mr. Hedge. No. Turn it around the other way, would you forbid 
the paying of rebates in marine insurance to-day? I do not think I 
should urge that action. 

Mr. Edmonds. You think it would be better to leave it a little free? 

Mr. Hedge. I think so; free competition. Of course, there is really 
too much competition, but the way things are to-day I think it should 
be that w,ay. 

Mr. Edmonds. If you American companies were a little closer 
together, I do not believe there would be so much competition. If you 
understood each other better, I think probably you would be corre¬ 
sponding with one another and you would know a great deal of what 
the brokers were doing and you would not allow them to bat you 
around so much. 

Mr. Hedge. You take your burlap insurance arrangement, it works 
just that way, you see. That is a mighty good thing for the American 
insurance companies. For instance, if we had a large line on burlap 
w T e might go to Mr. Chubb or to Mr. Rush or the branch of the Provi¬ 
dence-Washington, etc., and ask them if they would take $100,000 
reinsurance. They have customers who may have burlaps on that same 
vessel. We do not know, you see, until sometimes when the vessel 
may arrive what we have on the steamer. Mr. Chubb might say, “I 
would be glad to take it, but I am afraid we have lines for some of 
our local customers.” And he would not take it. The result is the 
other companies would be in a similar position, and you might have a 
good deal of that reinsurance go abroad, whereas now, with this rein¬ 
surance arrangement, if we have a large line, and that takes up a 
large proportion of the cargo space, why, we know the other fellow 
must have less, and we know about what the lines on burlap run and 
it is divided around in these proportions. So that the whole thing 
is taken care of and we all get a line on that steamer, whereas if that 
steamer had arrived in the first case Mr. Chubb’s customers might not 
have had a dollar on it and he has declined business he would like to 
have had, and he has declined for fear he might have that very line 

for himself for a regular customer. 

Mr. Edmonds. An arrangement like that stabilizes rates, and as 
long as the rates are not unjust I can not see why there should be any 
particular objection to that. , 

Mr. Hedge. I do not think there is any objection. As a matter ot 
fact, I do not think the merchant cares whether he pays a 50-cent rate 
or a 55-cent rate; but the importer of hides, say, goes out to lunch and 
goes to his club, and he sees another importer, and they get to dig- 


278 


MARINE INSURANCE. 


cussing the rate on hides from the Kiver Plata, and the first man dis¬ 
covers whereas he is paying a 60-cent rate the other man is getting his 
insurance for 50 cents. Then there is trouble right off. Put if they are 
both paying 60 cents or both paying 50 cents, they are both satisfied— 
they do not care which rate they pay. As a matter of fact, in that 
burlap reinsurance arrangement, we had an interest with the Beamish 
Bros. Bag Co. there in Boston, and I w T ent right to the vice president 
there in charge and I told him we were thinking of going into this 
arrangement and I w T anted to tell him about it. I told him, “ I want 
you to know what we are going to do because you have always insured 
with us and stuck right by us and I do not want to put up a deal 
behind your back, and I think you will approve of the arrangement.” 
And inside of 15 minutes I walked out with his entire approval, and 
they have no reason to be dissatisfied and have never expressed any 
dissatisfaction since. And during the war we had for them on cer¬ 
tain cargoes—they had a number of entire, cargoes from Calcutta to 
Cuba on which we were backing them only, and by reason of that 
reinsurance arrangement we were able to take care of them. They 
had a cargo that ran up to $3,000,000—that may be a little high, 
but it was up in the millions—and we were able to take care of it right 
here in America, I think almost entirely, because of the burlap rein¬ 
surance arrangement. 

Mr. Edmonds. Didn’t they reinsure on the other side at all? 

Mr. Hedge. I am not positive about that, but w T e took care of a 
tremendous amount right here in this market, and we never could 
have done it except with that arrangement. 

Mr. Edmonds. I did not ask Mr. Evans what he thought of this 
arrangement, but it struck me as being a reasonable sort of an 
arrangement. 

Mr. Evans. The pooling arrangement ? 

Mr. Hedge. Yes. It is not a pooling arrangement- 

Mr. Evans. I think that is in all lines of insurance. 

Mr. Edmonds. It leads to a stabilization of the market, I imagine ? 

Mr. Evans. The great thing is to be sure the American companies 
are in the pool. 

Mr. Edmonds. Yes; and that they get at least their fair share of it. 

Mr. Evans. Yes. 

Mr. Edmonds. That is what struck me, in looking over some of 
these pools, that considering the fact that the percentages of re¬ 
insurance of certain of the companies was so great on the other side, 
it looked as if the reinsurance arrangement, instead of taking care 
of the American companies and giving them their full lines as far 
as they can carry, and then reinsuring what was left on the other 
side, that they might be doing too much on the other side. 

Mr. Hedge. Of course, you have another point of view, and that 
is the English companies’ point of view, that they have been over 
here and complying with the laws of the United States for the last 
40 years and paying taxes, and have been welcome over here, -and 
their assistance has been needed, and they have built up a big busi¬ 
ness, and why should they turn around and give some new company 
that has just organized, or some fire company that has stood back 
and never taken an interest in the matter, a large portion of their 
business ? 



MARINE INSURANCE. 


279 


Mr. Edmonds. That is true, looking at it from a business sense; 
but looking at it from a commercial sense, to build up our merchant 
marine and our commerce it is a different proposition. For instance, 
look at this gold arrangement I told you about yesterday, in which 
England prohibited gold being insured by English insurance com¬ 
panies from anywhere except to and from England—why, she simply 
was building up her own commerce at the expense of the other 
fellow. The companies who are either controlled or interested with 
the English companies here refusing it would mean that you would 
have to go to England and ask whether we dared or dared not ex¬ 
port gold. 

Mr. Hedge. I do not think that was the reason for the action of 
the English Government there. I do not think it was for the pur¬ 
pose of building up their commerce; I think it was a matter of ex¬ 
change or something else. I really know very little about that, but 
I do remember this: that at that time we were asked if we would 
take insurance on gold. We do no insurance of securities such as 
registered mail, as a rule, and this gold is written at a very low rate 
and for a very large amount. We were asked if we would enter into 
an arrangement with other American companies so as to facilitate 
the shipment of gold from this country to South America at that 
time, and there was to be a meeting of the companies held for the 
purpose of arranging such cover bv American companies. I think 
we all as American companies would have taken an interest in put¬ 
ting through such an arrangement, provided we could get a rate that 
was fair to our stockholders; but for some reason or other the banks 
at that time did not make that shipment and the matter was dropped. 
But if it had not been dropped, you would have found the American 
insurance companies insuring gold to South America, 

Mr. Edmonds. I understand the banks simply transferred it 
through English sources. 

Mr. Hedge. I do not know. All I know, from an insurance point 
of view, is that the matter was dropped. And you have, you see, a 
large amount of capital over here and if there was sufficient profit 
in the business to make it worth while to write big lines, we could 
write enormous lines. You have a combined capital and surplus of 
$249,000,000, and that is plenty of capital. 

Mr. Edmonds. That is, all fire and marine insurance companies? 

Mr. Hedge. Of those that are writing marine to-day. If you com¬ 
bine fire companies alone that have the authority under their charter, 
it would bring it up tremendously. But it works this way: In the 
old days when our companies were organized, there were a tremen¬ 
dous number number of sailing vessels and we used to carry $20,- 
000 on a sailing vessel all over the world. As sailing vessels grad¬ 
ually went out of existence and a number of individual risks dropped 
behind we had to reduce our individual lines, so that five years ago 
a $10,000 line on a sailing vessel was a large line. I do not know 
of any other company writing as much on an American schooner as 
$10,000. Since the war there have been a large number of schooners 
launched and which have gone into the trade, and we have an addi¬ 
tional volume of premium, so we have increased our line so that 
to-day we carry $15,000 on a hull—and hull and cargo we carry 
$20,000—just double what we were carrying before, simply because 
we could spread the risk to new vessels. 


280 


MARINE INSURANCE. 


Mr. Edmonds. Is that spread of risk growing to-day ? 

Mr. Hedge. Yes; although I do not think it will grow very much 
more in that particular line of business. 

Mr. Edmonds. You have a line on the hulls? 

Mr. Hedge. On that particular schooner line. Of course the 
steamer line the Emergency Fleet has turned into the insurance mar¬ 
ket has increased that spread, but there is no use of turning the new 
Emergency Fleet into the insurance market at a rate that does 
not pay the bills and leave something besides; I mean there is no 
use turning the Emergency Fleet over to the American people, to 
the American insurance interests, with the idea of doing it at 5 per 
cent, which equalizes itself. 

Mr. Edmonds. And there is no use of turning the Emergency 
Fleet over to the American insurance interests if they are going to 
reinsure 90 per cent of it on the other side at a low rate. 

Mr. Hedge. I do not think you would reinsure 90 per cent over 
there; I do not think they would do it at a lower rate. I think there 
would be value in it to the American insurance market for that 
volume of premium. 

Mr. Edmonds. I think it would be of value if the American insur¬ 
ance companies would take it all themselves and would agree not to 
reinsure it outside of this country. 

Mr. Hedge, How many of the companies now writing hulls accept 
hull lines and reinsure abroad? 

Mr. Edmonds. Nobody has any hull lines that we can find to-day 
that are worth anything in this country. 

Mr. Hedge. Oh, yes; they have, sir. 

Mr. Huebner. There are some companies the majority of whose 
marine insurance is their hull insurance. 

Mr. Hedge. These have recently gone into business, and their hull 
lines are out of proportion to their cargo lines. The only reason 
they are not writing cargo lines is because they can not get enough. 
I think Mr. Rush said he was not writing hulls to-day, and wTen 
we were discussing this very matter at a committee meeting he 
said if he could get an adequate rate on the hulls he would write 
as much insurance as any two companies; that the North American 
and the Alliance would write $400,000 on an individual hull. It is 
all a matter of getting enough premium. 

Mr. Edmonds. That is true, and yet here you have the English ad¬ 
vancing their rates on the hulls in England and other foreign coun¬ 
tries and keeping down to the same old rates here. 

Mr. Hedge. If they boosted the rates, I think they would lose the 
business. I think this country, they know just as well as we know, 
has had a tremendous growth of its merchant marine. In the old 
days there used to be comparatively few American companies writ¬ 
ing this business and they got a very large proportion, and to-day 
it is going over there. But now to-day they realize that we have 
these new companies that have gone into the business, the Conti¬ 
nental, the North American, the Glens Falls, the Westchester, the 
American of Newark, the Camden of New Jersey—all those com¬ 
panies that were fire insurance companies pure and simple have now 
gone into marine insurance and they have increased the marine in¬ 
surance facilities tremendously. And if the English boosted their 


MARINE INSURANCE. 281 

rates so as to make the business profitable to American companies, 
then they would lose the business naturally. 

Mr. Edmonds. The temptation would be very great, I know, if 
I was in the insurance business, to take a very big line on American 
hulls at a good rate that paid and to reinsure in England where 
they are taking hulls at a great deal lower price and take the profit 
between the two. How can you prevent that? They have all the 
insurance of the Navy; you acknowledge yourself the builder’s risk 
is insured in England. 

Mr. Hedge. Yes. I think there was very little of the business and 
the business was not of tremendous value. You take a battleship 
costing several million dollars, the facilities for writing that in this 
country were very small, and I know for my own company we did 
not write that class of business because there was not a sufficient 
volume on which we could make an average, and if we got one bad 
loss there was no volume of premium to take care of it. 

Mr. Edmonds. There must have been considerable during the war, 
a tremendous number of risks. Of course I presume there were a 
good many small risks and you could not get much out of them? 

Mr. Hedge. When the war began and the shipbuilding began to 
increase here, we took up builder’s risk and went into it simply be¬ 
cause we could get a volume of premium. We are writing builder’s 
risk to-day. In fact, all the Maine schooner risks that used to go 
to London Lloyds, because they allowed a perfectly ridiculous rate 
that we could not look at, I think to-dav all that business is being 
written in this country. 

Mr. Edmonds. That is coming back now? 

Mr. Hedge. They would rather do business with us over the Eng¬ 
lish, if we could do the business. 

Mr. Edmonds. Is it an advantage to be insured in an American 
company in the way of collecting losses and damages? 

Mr. Hedge. I think so. It seems to me it stands to reason it must 
be so. If you have a vessel that is building at Fore Biver, or at 
Bangor, and it is insured with the Boston Insurance Co., you 
can come right in there with your bills and sit down there and in 
half an hour or an hour you can run over it with the adjuster and 
get anything you want information on, and the whole thing can 
be cleaned up and settled very promptly. Whereas if you have to 
send across to England there is necessarily a delay, although the 
English underwriters settle very promptly. 

Mr. Edmonds. Do they settle from England or from here? 

Mr. Hedge. They settle from England. You are talking about 
business that is exported? 

Mr. Edmonds. Oh, yes. 

Mr. Hedge. They settle that from England. 

Mr. Edmonds. And in any case the man would have to wait 20 or 
30 days before he could get a settlement? 

Mr. Hedge. Oh, yes. 

Mr. Edmonds. Don’t they have people here to settle up losses? I 
am not talking about indemnities. 

Mr. Hedge. They have surveyors over here that go over the loss at 
the time and survey the vessel’s damage and approve specifications 


282 


MARINE INSURANCE. 


for repairs and such things as that, but the actual money transaction 
is on the other side. 

Mr. Edmonds. Do these brokers representing English companies 
settle these losses when they are small losses? 

Mr. Hedge. I can not answer that. There are some others here 
who can tell you about that. If they do, I think they advance it for 
the foreign account. 

Mr. Edmonds. In this export business, in the case of a suit, suppose 
now it was a United States battleship and the insurance had been 
exported on it? 

Mr. Hedge. Yes; and the insurance was placed with London 
Lloyd’s. You would have to sue in the English market in London. 

Mr. Edmonds. You would have to sue in the English market to get 
any redress? 

Mr. Hedge. Yes; unless you could get jurisdiction here in some 
way over funds you happened to know of that were here. But that is 
incidental. The answer is they would have to sue in the English 
courts. 

Mr. Edmonds. Then it is an advantage to have the policy here ? 

Mr. Hedge. Yes; certainly. Furthermore, there is this difference 
in the exchange and we have a time, because a man who placed insur¬ 
ance there when the exchange was 4.75 for the pound sterling, now if 
he lias a total loss he gets $4.13, and the result is a lot of these mer¬ 
chants, especially vessel owners who have had insurance with Lon¬ 
don, have taken out additional insurance to cover the shrinkage in 
their insurance by reason of the shrinkage in the original value of 
the pound sterling. And there is a distinct advantage in insuring 
at home also, because the more premiums you build up here at home 
necessarily mean a reduction in your taxation rate, because the more 
there is subject to tax the less the rate. 

Mr. Edmonds. What do you think of the idea of some supervision? 

Mr. Hedge. I am a little bit fearful of it. We have 48 supervisors 
now. 

Mr. Edmonds. Their supervision would be entirely different from 
ours. 

Mr. Hedge. If you were going to be the supervisor for the next 10 
years, knoAving your point of view, I should advocate it. 

Mr. Edmonds. If it is a better job than I have, I might take it. 

Mr. Hedge. There is so much in the individual; that is the point. 

Mr. Edmonds. I presume that is true. Yet, at the same time, the 
Shipping Board has this supervision which has been lying dormant, 
and I think it virtually covers it all. 

Mr. Huebner. Merely from the standpoint of the exporter and the 
importer—discriminations against them. 

Mr. Hedge. The shipping act provided they should look into the 
matter of marine insurance and make recommendations. 

Mr. Edmonds. This is the looking into it now. 

Mr. Hedge. That provided for the Shipping Board. 

Mr. Edmonds. We are looking into it for them. They have not 
done so and we find it is necessary to be looked into, and I would 
like to say that they are with us in this matter, and this testimony is 
going to them just as much as it is to us. 


MARINE INSURANCE. 


283 


Mr. Hedge. I think the entire interest here is one and the same to 
help the American insurance business and that the'Shipping Board’s 
interest, your interest, and our interest are all one. 

Mr. Edmonds. Being in business myself, and one that is very well 
supervised, I realize the great trouble you folks are under and the 
expense you folks have in preparing and continuing reports. 

Mr. Hedge. It is more than the expense. 

Mr. Edmonds. I would not want to go so far as to make you a 
lot of trouble, but I would think supervision which would prevent 
injustice and inequalities, or some kind of- 

Mr. Hedge. Development of facts. 

Mr. Edmonds. Some kind of supervision which would develop the 
facts, and that would prevent a man doing an, injustice, which would 
have the effect of supervision generally so that this man would 
say, u Now I would not want to do that, because that is not altogether 
the thing to do,” whereas, if he knows he has no supervision, he 
might do it—I think that would be a good thing. 

Mr. Hedge. Yes; except for the fear of the supervision being a 
source of trouble, T should say it was an extremely good idea. 

Mr. Edmonds. Not with the idea at all of giving any regulatory 
powers but simply to prevent things that ought to be prevented, 
and which probably most of the men in the insurance business would 
agree on preventing. 

Mr. Hedge. Yes. 

Mr. Evans. May I suggest if it were possible for the Federal Gov¬ 
ernment to give a license to do business in the United States, we 
could get away then from the 48 different requirements. You can 
not stop the taxes, you can not stop the police powers of the States, 
but it ought to be possible to have a company do business in the 
United States under a Federal or its own State license, or whatever 
you will, without being annoyed and being put to heavy expenses 
by 48 different States. 

Mr. Edmonds. We will think that over, Mr. Evans, and you think 
it over. too. 

Mr. Evans. I do not know what you can do. 

Mr. Edmonds. There are a great many legal obstacles to a thing 
like that and everybody has to put their best thought to it and get 
the advantage of the best opinion upon it to see if it is possible. If 
we have to get it through an amendment to the Constitution, then 
you can never hope to have it in your lifetime or in mine; but if 
we can do it in any legal manner, that would possibly be a helpful 
solution. 

Mr. Evans. I think insurance is commerce. 

Mr. Hedge. In spite of the Supreme Court? 

Mr. Evans. The Supreme Court has ruled the -other way. But 
to-clay a cotton buyer in Texas, for instance, a part of his contract 
is to deliver his cotton in Liverpool, and to cover the insurance. 
Now, the insurance is a part of that contract, and I believe if the 
matter came before the Supreme Court, if you could properly frame 
up such a case, that they would change their ruling. 

Mr. Hedge. I hope it never does. I should hate to see Federal 
supervision. It is not as bad as it used to be under State supervision, 
and the commissioners are working together more and more, and I 



284 


MARINE INSURANCE. 


think sometimes the companies are a little at fault in not getting 
together and putting their point of view up to the commissioners in 
the right light. 

Mr. Edmonds. Another thing is the question whether we could 
not, after this discussion is ended, make some suggestion to these 
associations of State commissioners. That would help, too. 

Mr. Hedge. I think it would. 

Mr. Evans. They have a committee now that has the matter under 
consideration and it was done at my suggestion through a letter 
I wrote to Governor Smith, that he referred to Phillips when he was 
commissioner of New York State, and the whole matter was re¬ 
ferred to a committee of the insurance commissioners to see if they 
could not simplify the. situation. They go to this extreme in many 
of the States. If I send my statement to New York State, I can not 
have that duplicated in print or by photograph or by anything else. 
Massachusetts, under old Commissioner Hardson, would not take 
anything but a hand-written copy. Now I have three companies, 
and nearly every State requires from two to four copies in the State, 
and I have to swear to it—of course, to the best of my knowledge and 
belief—but I like to know what I am swearing to. And if I had a 
photograph (there is a process, you know, of photography that 
would enable me to have these blanks photographed) then I would 
be sure all I had to do would be to examine one. But they won’t 
take it. I do not say all States do that way, but a number of the 
States in the United States require a hand-written copy, which is 
utter rot. 

Mr. Hedge. The report filed yesterday by Mr. Rush was a report 
of the marine underwriters of the United States, which was filed in 
response to the invitation of your committee forwarded by me to 
the association at your request in August. The association referred 
the matter to their legal committee, which reported back to the asso¬ 
ciation the matter was considered of such importance that a special 
committee should be appointed further to consider what recommenda¬ 
tions should be made. That committee held subsequent meetings and 
reported back to the full association, and the association made sev¬ 
eral minor changes; and the report filed with you is the report adopted 
by that association at that meeting. 

Mr. Thacher. That is why you got two drafts ? 

Mr. Edmonds. No; I had the preamble that you agreed on in your 
association in regard to the fact there were enough companies now to 
do the business. I got that three weeks ago. 

Mr. Thacher. Exactly; that was the draft of the committee. 

Mr. Edmonds. I got that, and with it a very strong protest that 
that statement was not true; that there were not enough companies 
to do the business. 

Mr. Hedge. With the statement of the capital which I gave to the 
committee, there is no question you have plenty of capital if you got 
the business. 

(The committee thereupon took a recess until 2 o’clock p. m.) 

AFTER RECESS. 

The subcommittee reassembled, pursuant to the taking of the 
recess at 2 o’clock p. m. 


MARINE INSURANCE. 


285 


TESTIMONY OF MR. WALTER WOOD PARSONS, OF NEW YORK, 

VICE PRESIDENT OF THE ATLANTIC MUTUAL INSURANCE CO. 

Mr. Edmonds. Suppose you go right ahead with your statement, 
Mr. Parsons, or if you have any suggestions to make. 

Mr. Parsons. It has occurred to me, in hearing the facts that have 
been presented before you, it might be wise to state that this company, 
the Atlantic Mutual Insurance Co. of New York, is the only mutual 
marine insurance company in the world, and they have been doing 
business on a mutual basis since 1842. That, of course, means that the 
profits on the business revert to the assured, and that the business is 
done as nearly as possible on a cost basis to the assured; so that we feel 
the rates charged the assured represent the actual cost of the business. 
And inasmuch as we are, I think, on friendly relations with all the 
other stock companies, and who are doing a similar business on a non¬ 
dividend basis, we feel that the general rates of premium charged 
for marine risks measure the value of the risk; so that the American 
market is not a market which is excessive in its charges for marine 
insurance. In other words, if business is placed on the other side, 
it is done at lower rates simply as a temporary expedient; that the 
value of the risk is measured by the American market rates. Having 
that in view, it would seem that American insurance should be placed 
with American companies, and, in back of all the laws which might 
be suggested, either punitive or remedial, for American marine insur¬ 
ance, there should be this idea of patriotism, that the American mer¬ 
chant or the American Government, when it is necessary or appar¬ 
ently necessary for them to effect insurance, the preference should be 
given to the American market. It is rather difficult, I think, to 
instill patriotism into an individual unless the example is set by our 
Government. In other words, that where it is necessary to place 
insurance, even if the rates are slightly different in the American 
market, that the American market should be encouraged by both 
the Government and the individual rather than the foreign markets. 

Further, it seems to me that it is a very difficult matter to legislate 
as to where a man shall place his business, and that any legislation 
along marine insurance lines should be to equalize the position of 
the American underwriter with that of the foreign underwriter, 
and, if possible, to place them in the same position as the foreign un¬ 
derwriter is with respect to taxes and other restrictions about doing 
his business. 

Mr. Edmonds. Do you do hull insurance? 

Mr. Parsons. Yes. Our hull insurance business, if I may explain 
here, is confined to American bottoms. We are distinctly an Ameri¬ 
can company and we do not write as a rule the hulls of any vessels 
that do not flv the American flag. There are only a few exceptions 
where we have taken risks on hulls that were of foreign registry. 

Mr. Edmonds. Of course, cargoes, you have to take what you can 
get? 

Mr. Parsons. Cargoes we have to take what we can get. 

Mr. Edmonds. What about builder’s risk ? 

Mr. Parsons. We have written builder’s risk in limited amounts. 

Mr. Edmonds. Is there much opportunity for the writing of build¬ 
er’s risk in this country. Will most of the companies take it? 


286 


MAEINE INSURANCE. 


Mr. Parsons. I think most of the companies do take it, but the 
builder’s risk has been recently, as I understand it, largely controlled 
by the Government and the bulk, I think, has been placed in foreign 
companies. In other words, it has been taken out of American 
markets largely. 

Mr. Edmonds. That is because, I presume, the Shipping Board in¬ 
sured their own risks. Is that right, Mr. Chubb? 

Mr. Chubb. The Shipping Board did what? 

Mr. Edmonds. Insured their own builder’s risk? 

Mr. Chubb. Yes. 

Mr. Edmonds. They insured their own builder’s risk on their own 
bottoms. 

Mr. Parsons. As I understand it, the Navy Department did theirs 
in foreign companies. 

Mr. Edmonds. The Navy did effect their own insurance and most 
of it went out of this country. Are the rates on the hull business 
profitable ? 

Mr. Parsons. You mean as a class? 

Mr. Edmonds. Yes. 

Mr. Parsons. I think that varies from year to year. Some years 
they are profitable and some years they are unprofitable. 

Mr. Edmonds. Are they very profitable when they are profitable? 

Mr. Parsons. No; not very profitable. 

Mr. Edmonds. Not very? 

Mr. Parsons. I think it is usually a touch-and-go with hull in¬ 
surance, whether you make your losses out of it or not. 

Mr. Edmonds. One thing that strikes me as peculiar is that there 
is such an evident effort by foreign companies to get our hull insur¬ 
ance. Why is that? 

Mr. Parsons. I do not know why that is. I think it is true that 
a large portion of the hull insurance has gone to foreign companies 
during the last two or three years, and I think not only hull but 
cargo insurance, but I think that is a situation that is very likely 
to readjust itself, because it has gone at rates which were lower than 
the American standard rates, and, as I tried to point out a few 
minutes ago, I think the American rates are not higher than the 
business will warrant, and I think the pendulum is bound to swing 
back and that that business will return to this market when the 
foreign companies have found it unprofitable. It has been my ex¬ 
perience in the last two or three months, where we have lost large ac¬ 
counts to Lloyd’s at lower rates, that after four or five months have 
passed I have been offered those accounts back in our own country 
at our own rates by British insurance companies because they have 
found it unprofitable. So I think the importance of the amount of 
business that has gone to foreign underwriters during the past two 
or three years is perhaps overestimated, because I think the nat¬ 
ural channel will be it will find its way back when foreign under¬ 
writers find it is unprofitable at the rates they have taken it from us. 

Mr. Edmonds. How 7 do you fix your rates? 

Mr. Parsons. That is a very difficult question to answer. We fix 
our rates according to our own judgment of the risk and the value 
of the risk. There are no fixed marine insurance rates. 

Mr. Edmonds. No; I assume that, and from the testimony it is 
more or less a case of judgment and conversation? 


MARINE INSURANCE. 


287 


Mr. Parsons. Experience and knowledge. 

Mr. Edmonds. Knowledge and experience and talking it over with 
each other. I suppose you form your judgment, of course, from 
others’ experience and through the business and results that you get 
yourself? 

Mr. Parsons. Principally from the results we get ourselves, I 
think. 

Mr. Edmonds. Yet your rates are all very near alike? 

Mr. Parsons. Generally speaking, I should say that w T as the case. 

Mr. Edmonds. You do business with agents? 

Mr. Parsons. We are a mutual company and we have representa¬ 
tives, but we do no underwriting through agencies. All the under¬ 
writing is done at the Wall Street office in New York. So, strictly 
speaking, we have no agencies. 

Mr. Edmonds. That is different from the old-line company ? 

Mr. Parsons. We are peculiar in that respect from many, because 
we are the only mutual company that exists at the present time. 

Mr. Edmonds. When you underwrite business, of course, that is 
brought in by a broker, you pay for it? 

Mr. Parsons. We pay compensation to the brokers for business, for 
bringing business in to us, yes. There is no fixed rate of broker’s 
compensation. 

Mr. Edmonds. What do you know of the export of insurance 
abroad? I think you heard what I meant by export? 

Mr. Parsons. Yes. It is only hearsay, of course. As an under¬ 
writer I do not know very much about it, except from the amount of 
American business which has been done and the amount of premium 
for that business which has originated in this country. Of course, it 
is obvious a great deal of it does go abroad. 

Mr. Edmonds. Do you think between BO and 50 per cent of the hull 
insurance is exported? 

Mr. Parsons. I should say that is a fair figure, but without know¬ 
ing. 

Mr. Edmonds. You heard this morning some of the suggestions 
made in regard to the lines of thought looking either to legislation 
or education? 

Mr. Parsons. Yes. 

Mr. Edmonds. What do you think of those different propositions 
we suggested? 

Mr. Parsons. I think the propositions are all very interesting, but 
I doubt if any of them are really curative. I think it is a question 
of education. 

Mr. Edmonds. Will they help? 

Mr. Parsons. I think they are helpful, decidedly. 

Mr. Edmonds. Do you think a little supervision, gentle super¬ 
vision, with the idea of weeding out injustices, would be a good 

thing ? . . 

Mr. Parsons. I think perhaps we have too much supervision at 

the present time. 

Mr. Edmonds. Of course, the Government has let you alone up to 
the present, you know, and we do not like to see two-tliirds of this 
insurance going over to the other side. You do not seem to be able 
to hold it down yourselves, and if we let go of all these Shipping 


288 


MARINE INSURANCE. 


Board ships I am afraid we will find 90 per cent of that trotting 
over to England to be insured. 

Mr. Parsons. I think if it did the result would be very beneficial 
to the American market. 

Mr. Edmonds. The American insurance market? 

Mr. Parsons. To the American insurance market. 

Mr. Edmonds. What makes you think that? 

Mr. Parsons. Because I think if it goes over at the low rate now 
that the experience will warrant its coming back at the rate at which 
it should be written, at a moderate profit, in the American market. 

Mr. Edmonds. Don’t you think they have pretty good judgment 
over there when they write this insurance, or do you think they just 
take a chance? 

Mr. Parsons. I hate to criticize their judgment. 

Mr. Edmonds. You think then that they would take this insurance 
and find it was so expensive they would not want to take it after 
awhile ? 

Mr. Parsons. I am quite sure of it. 

Mr. Edmonds. That was not our experience after the Civil War, 
you know that? 

Mr. Parsons. Yes. 

Mr. Edmonds. They did exactly the same thing they are doing- 
now after the Civil War, and hung on to it. That comeback you are 
just suggesting did not come back after the Civil War. 

Mr. Parsons. I want to call your attention to the vast increase in 
the American market for marine insurance. The American market 
has really not been asleep. The writing involved and the capital 
involved have really quadrupled, and I am quite sure it could not do 
that at rates which are not mutually remunerative. 

Mr. Edmonds. Of course, during the war time if the experience 
of the War Risk Bureau was anything to go by, the rates were ex¬ 
ceedingly remunerative. 

Mr. Parsons. I think that is hardly a fair comparison. 

Mr. Edmonds, I do not think it is either, because they had no over¬ 
head and no agency expense like an ordinary insurance company 
would have. But ^ven at that there was a fair return for the money 
that would have been necessary to have been invested and earn a fair 
profit. 

Mr. Parsons. They certainly had a very fair return for their 
money. 

Mr. Edmonds. Virtually they claim $17,000,000 profit. 

Mr. Parsons. I think so. 

Mr. Edmonds. Which might probably have required a capital to 
handle the business of $100,000,000, and it would have been a very 
fair return for the time they were in business. And I guess the 
rates were very profitable during the war; I should imagine they 
were; I hope they were. The more you got the more we got when 
we came around for our excess profits. So I imagine the situation is 
better than after the Civil War. I think you are right on that. The 
question is now; Can we hang on to it or are we going to let it go 
again, or are these companies going gradually to dry up and go out 
of business? 

Mr. Parsons. A good many things have gone dry recently that 
have not been dry before, and that may be. 


MARINE INSURANCE. 


289 


Mr. Edmonds. Does that include New York? [Laughter.] 

Mr. Parsons. That includes New York. I do not see any evidence 
of the American marine underwriters going out of business from the 
showings now exhibited. 

Mr. Edmonds. They have been hit pretty hard on the hull business 
already. 

Mr. Parsons. We have all been hit pretty hard during the last four 
or five months. There has been a succession of tremendous losses. 

Mr. Edmonds. Do you mean real losses or losses of business. 

Mr. Parson. Real losses, marine losses, such as the Galveston flood 
and the sinking of steamers with very large cargoes and steamers 
running ashore. In fact, the marine business at the present date is 
not in a very healthy condition. 

Mr. Edmonds. You go on and prescribe something for it, so that 
we can put it in a healthy condition. 

Mr. Parsons. For one thing, the regular line captains have in a 
large measure been removed from their runs, and inexperienced men 
are handling vessels, transatlantic and otherwise, to the great detri¬ 
ment of the safety of the cargoes and the vessels themselves. The 
fact came to my attention the other day of a young man who had just 
received the captaincy of a vessel at 22, in full charge of a vessel of 
over 5,000 tons, carrying a cargo of $3,000,000 from one of our Ameri¬ 
can ports to the other side. It naturally causes an old underwriter 
to pause as to whether or not, if that vessel got into trouble, that 
captain of 22, w T ith such a valuable cargo and such a big steamer, 
would be able to handle the situation. That is one thing. 

Mr. Edmonds. And yet that limitation of age of 21 years for a 
captain has been on the English books for a hundred years, and they 
have been running cargo steamers with boys of 20, 21, and 22 in Eng¬ 
land for years. We had a limitation on the captains, and we with¬ 
drew it in 1914 on account of the fact we found on investigation that 
not only in England but in all the continenal countries a man of 21 
years of age could be a captain of a steamer. And we reduced our 
officers’ age to 19,1 think it was, so that a man could get to be a cap¬ 
tain here by the time he was 23 or 24 years of age. 

Mr. Parsons. The putting of a man of that age in charge of vessels 
of that character, however, is out of the question. 

Mr. Edmonds. Then when it comes down to the competition of the 
ships, we find it is complained of by the owners that they can not 
get these officers, and that we make the limitations too hard for them, 
and they can not run their ships because it makes it too expensive. 
So we have the other side to think of. There are two sides here. A 
man can become a captain now at 21 years of age, but, of course, he 
should have the experience. 

Mr. Parsons. My particular reference was to the change of routes, 
where there is a manning of vessels with inexperienced crews on new 
' routes, and vessels originally constructed for the coastwise trade only 
being used in the transatlantic trade, and the general upheaval of 
the old men on the old routes and the old vessels on the old routes, 
which has resulted, I think, in very serious losses. 

Mr Edmonds. Don’t you think we have been rather fortunate m 
our losses; that even with all that, with all the enormous expansion 
we had to take care of, we have been rather fortunate m our losses? 

Mr. Parsons. During the war times, I think so; yes. 

160770—20-19 


290 


MARINE INSURANCE. 


Mr. Edmonds. During the war times, and even now we seem to be 
fairly lucky. 

Mr. Parsons. Only fairly lucky, sir. 

Mr. Edmonds. I do not believe any other nations are any luckier 
than we are; I think we are just as well off as any of them. 

Mr. Parsons. With respect to sinking by war perils, I think so. 

Mr. Edmonds. And sinkings by ordinary perils, too; don’t you 
think so? 

Mr. Parsons. Perhaps so. 

Mr. Edmonds. I see in the papers every once in a while where an 
American ship gets in trouble, but I also find that a Spanish ship 
gets in trouble, and an English ship gets into trouble, and I do not 
think we are worse off to-day than most any other nations; I think 
they have all had their troubles on that score. 

Mr. Parsons. I quite agree with you there, sir. 

Mr. Edmonds. I think you gentlemen have your rates fixed so that 
you can take care of all your troubles, and that you keep them up 
there until you get competition and then you have to put them down. 

I know if I were in business, I would do that. 

Mr. Parsons. I do not think that the average marine rate at the 
present time is sufficient compensation for the hazards incurred, 
however. The going rates are not sufficient from a purely marine 
standpoint to compensate for the hazards. 

Mr. Edmonds. Of course, you have had an opportunity to have 
exceedingly high rates. You know it and I know it. Then the time 
comes—there is always a reaction on that kind of thing—and it goes 
too much the other way. Then the time comes when they will stabi¬ 
lize themselves. 

Did you hear about the Webb-Pomerene bill for allowing the com¬ 
panies "to get together without any danger of being prosecuted under 
the Sherman Act? 

Mr. Parsons. I have heard of the bill; yes. 

Mr. Edmonds. You heard it mentioned here this morning? 

Mr. Parsons. Yes. 

Mr. Edmonds. What do you think of that? 

Mr. Parsons. I am not familiar with that bill. 

Mr. Edmonds. It is simply allowing the combination of companies 
for export business. As far as that could be made to extend to in¬ 
surance, would that be anything beneficial? I suppose yours being 
a mutual company you would not be very much interested in that? 

Mr. Parsons. No ; and really I can not speak intelligently on that 
subject because I am really not familiar with it. 

Mr. Edmonds. It would be a case where a number of insurance 
companies could get together and combine to do this business. 

Mr. Parsons. You mean under the suggestions that were made 
by Mr. Hedge this morning in his testimony? 

Mr. Edmonds. Yes. 

Mr. Parsons. We, of course, had not been approached on that 
subject, and I am not thoroughly familiar with what Mr. Hedge 
spoke of. 

Mr. Edmonds. We were wondering whether it would not help the 
business along a little bit. Have you any idea how to stop this ex¬ 
port of insurance to foreign markets? I am not talking about re¬ 
insurance, but I am talking about the export of insurance. 


MARINE INSURANCE. 


291 


Mr. Parsons. That is a very difficult thing. I think there is merit 
in some of the plans that have been suggested. I think the funda¬ 
mental thing, however, is the patriotic idea that insurance should 
be placed with American companies so far as possible; and I do not 
believe that the American market is being used to that extent, from 
lack of that very feeling. 

Mr. Edmonds. I was thinking last night that the man who had 
an agency in this country and also had an agency in London would 
be able to make a very considerable profit out of the changes in rates 
from time to time, would he not? 

Mr. Parsons. You mean representing an American or a British 
company ? 

Mr. Edmonds. He would represent himself and make as much as 
he could out of it ? 

Mr. Parsons. As a broker? 

Mr. Edmonds. He would place the policies in England when he 
could get more in England and he would place the policies here 
when he could get more over here—just in accordance with where he 
made the most money on it. 

Mr. Parsons. I think most of the large brokerage houses are rep¬ 
resented in London and they have connections at both ends of the 
line and effect their insurance where they get the lowest rates, and 
make their commissions at either or both ends. 

Mr. Edmonds. Do you think taking advantage of the market on 
both ends in that way leads to a considerable exportation of the in¬ 
surance ? 

Mr. Parsons. I do certainly think so. 

Mr. Edmonds. It does lead to the exportation of insurance? 

Mr. Parsons. Yes. The activities of a broker to-day, as I under¬ 
stand it, are practically uncontrolled. He can place the business 
wherever he pleases. If he is familiar with the London market and 
the rate is lower there on a particular fleet of steamers, he takes ad¬ 
vantage of that market and places it there. 

Mr. Edmonds. He is like a bull in a china shop and runs around 
loose in the business. Of course it is very unfair competition, that 
exportation of insurance, because it does not pay any taxes. 

Mr. Parsons. No; it is absolutely unfair. 

Mr. Edmonds. And I question very much if it pays taxes on the 
other side; and where you do not establish a kind of interocean re¬ 
lationship, that you lose everything except the interest of the broker 
in it. Of course, I guess there is no question if the insurance com¬ 
panies were allowed to engage in a number of different lines—they 
would be very much better off, different lines of insurance. I do not 
suppose that would interest your company either ? 

Mr. Parsons. I think our charter is very broad in its character, 
but we have never taken advantage of any other line of business 
except the purely marine insurance business. I am not so sure that 
the broadening of that line of endeavor would result in the success 
of the marine underwriting. I think for the ordinary individual 
it would be a success if the marine underwriting required all of his 
attention; and if you branch out into liability insurance, automobile 
insurance, and various other forms of insurance, it is not conducive, 


292 


MARINE INSURANCE. 


perhaps, to the greatest success of marine underwriting. 1 hat is my 
own individual opinion. 

Mr. Edmonds. Still, if a man could have a number of different 
lines, some profitable and some not, it would lead to a lowering of 
the rates possibly. 

Mr. Parsons. I do not know that that would follow, sir. If you 
have a particular malady, you generally go to a specialist and I 
think marine insurance is it. 

Mr. Edmonds. Do you know anything about the load water line? 
We have a bill before us now for the establishment of a load water 
line. 

Mr. Parsons. I think it is a very important measure and that a 
determination of the load water line on vessels of American registry 
is very necessary and should be adopted at once. 

Mr. Edmonds. Do you speak of steamers for over-ocean business 
only ? 

Mr. Parsons. All steamers either coastwise or over-ocean. 

Mr. Edmonds. You think they all ought to have it? 

Mr. Parsons. It is particularly important for the coastwise steam¬ 
ers, in my judgment. They are grossly overloaded. 

Mr. Edmonds. And particularly objectionable, too? 

Mr. Parsons. And particularly objectionable, too. But possibly 
the measure of its importance is the measure of its objection. 

Mr. Edmonds. I think that is true. It is just as useful in the coast¬ 
wise as it is in the over-ocean. 

Mr. Parsons. As existing at the present time, I think it would be 
more useful in the coastwise than in the over-ocean, perhaps, if that 
is possible. 

Mr. Edmonds. It would help considerably in your judgment, in 
taking risks on coastwise steamers, would it not? 

Mr. Parsons. It certainly would. It would be an insurance in 
itself as to the safety of the voyage in question. 

Mr. Edmonds. Who would be the proper party for establishing 
that load line and taking care of it. 

Mr. Parsons. Some recognized classification society, such as the 
American Bureau of Shipping. There is an organization now that 
tends to regulate the loading of vessels in the port of New York— 
the Board of Underwriters of New York; but there is no plimsoll 
line mark, of course, upon steamers, and they go by their own rules 
for loading. That, of course, is a great safeguard for many of 
the vessels loading from this port, but there is no law which makes it 
necessary for the vessels to be loaded under the supervision of the 
Board of Underwriters of New York. 

Mr. Edmonds. As I understand it now, we are the only large 
nation with a large merchant marine that does not use the load 
line ? 

Mr. Parsons. That is the way I understand it. I think I am 
correct on that. 

Mr. Edmonds. Japan does, doesn’t she? 

Mr. Parsons. I am not sure about that. 

Mr. Edmonds. I am not sure, either. The only use for that, of 
course, would be to insure the safety of the ship, and naturally it 
would be to the advantage of the insurance men. 


MARINE INSURANCE. 


293 


Mr. Parsons. Not only the safety of the ship, but the condition 
of the cargo. A vessel might possibly get in and still have a 
damaged cargo because she was too heavily laden. 

Mr. Edmonds. What do you think about Mr. Hurley’s proposition 
to insure part of the hulls? 

Mr. Parsons. As I understand it the Government has never 
effected insurance on its own property before, and Mr. Hurley, I 
think, was simply carrying out, as I understand his proposition, 
the general thought of his Government in not effecting insurance in 
outside companies. In other words, it was carrying the insurance 
itself. I think the only exception is when the United States Navy 
insured builder’s risks in foreign companies. I thought Mr. Hurley’s 
idea was to carry out the general plan of the Government in not 
placing insurance in outside companies. I did not know he had a 
plan for instituting an American insurance bureau. 

Mr. Edmonds. Yes; he has a plan that all ships sold by the Ship¬ 
ping Board, that the Government’s interest in that ship should be 
insured by self-insurance; that is what it is, virtually. 

Mr. Parsons. Yes; but only insuring the retained interest of the 
Government. 

Mr. Edmonds. That is right. 

Mr. Parsons. In other words, that the Government’s property 
should not be insured outside. 

Mr. Edmonds. That is right. Then the United States Government 
might have—Mr. Hurley makes the claim; he made it before this 
committee, that if we were to do that, the American insurance com¬ 
panies would gradually grow to the point where they would absorb 
the entire insurance. In other words, if they took a 75 per cent mort¬ 
gage on a ship and insured it themselves, the next year it would only 
be a 50 per cent mortgage, and naturally there would be 50 per cent 
go outside and 50 per cent put in the Government. Now, if the Gov¬ 
ernment were to do that, would it lead to an absorption of the insur¬ 
ance gradually by the American insurance companies, and an enlarge¬ 
ment of the companies to take care of it, or would the companies be 
better off if we unloaded the whole thing on them to-day and let 
them expand? Wouldn’t they blow up if they were expanded sud¬ 
denly ? 

Mr. Parsons. I think they would all blow up if they took the in¬ 
surance on all of the ships at the rate suggested. I do not think we 
would have any American underwriters at the end of a few years. 

Mr. Edmonds. Then, perhaps, it would be better if we let Mr. 
Hurley’s plan go through and let the insurance be absorbed gradually 
by the outside companies. 

Mr. Parsons. I think if the companies took the insurance on all of 
the ships at the rate suggested there would not be any marine insur¬ 
ance companies, in my opinion, at the end of a few years. 

Mr. Edmonds. I presume what would happen would be, of course, if 
we were to turn it loose to these companies to be insured, that the 
insurance would float naturally across the water—that the insurance 
would go wherever it has been going. I do not know what would 
happen after that, and I do not like to see that. 

Mr. Parsons. I think that would largely be a question of supply 
and demand and rate as to where the insurance would go. 


294 


MARINE INSURANCE. 


Mr. Edmonds. That is what I say. 

Mr. Parsons. I think the foreign companies would absorb a large 
proportion of it. 

Mr. Edmonds. Then I am afraid there would happen just exactly 
what happened after the Civil War: it would stay there. 

Mr. Parsons. It would not stay there unless the business were 
profitable, and if the business were placed on a basis that would 
render it profitable a large portion of it would be here without ques¬ 
tion. 

Mr. Edmonds. Would it be better to let go of all these ships just as 
fast as we can and not do any insurance at all, or would it be better 
to hold onto the ships a little bit until you folks get stabilized ? I 
don't suppose it would make any difference then; that it would still 
go where the rates were loAvest ? 

Mr. Parsons. Judging from past experience, it would. It would go 
where it found the lowest rate, but that rate would not of necessity be 
of benefit to the marine underwriters. 

Mr. Edmonds. No; it would not; but would it not help our Ameri¬ 
can marine underwriters if we kept it down and told Mr. Hurley to 
go ahead and keep up his insurance company and insure the interest; 
you folks would be no worse off or better off than you are at the present 
time. Some day you might be, but I do not know when that would be. 

Mr. Parsons. I think, of course, the insurance on all these vessels 
would be largely a question of experience as to what the proper rate 
should be for them. 

Mr. Edmonds. Of course it could be required in the sale of the ship 
(but then it might interfere with the sale of the ship) that a man in 
bu}dng a ship must insure that ship in an American insurance com¬ 
pany, and that no underwriting or rewriting at all should be made in 
any but an American company. That could be done, but that again 
might interfere with the sale of the ship, though naturally the busi¬ 
ness would come to the American companies. 

Mr. Parsons. Yes. 

Mr. Edmonds. They would have to expand to take care of it or 
would have to take care of it in some way or other, or they could not 
take care of it—either one. And as long as we required that it should 
be in an American company, they could collect a rate that was com 
mensurate with the risk, which would be a very nice thing for the 
insurance companies in this country, I presume. But I am very much 
afraid if we were to do that the man who was buying the ships might 
probably object to being tied down that way, and it is really no detri¬ 
ment to the American insurance companies for us to keep up this 
Government insurance company. That is the way it looks to me. 

Mr. Parsons. With respect to this particular lot of ships you 
mean, or generally? 

Mr. Edmonds. With respect to this particular lot of ships. Mr. 
Hurley did not want to go outside of those; he simply wanted to 
keep his finger on the insurance for the Government ships, because 
he said you folks could not digest the insurance. It appears you 
may digest it, but it is not very good food to eat; it would give you 
indigestion if you . ate it. Therefore it would go to the London 
market. And in that case in order to keep this premium money here 
I suppose we had just better start up a small Government company 


MARINE INSURANCE. 295 

down here and take care of the insurance a little bit until you folks 
can say you can eat such strong food. 

Mr. Parsons. I do not think it would be necessary to go to the 
London market unless the rate were established by the Government 
at an unusually low interest rate. I think the American market 
could absorb a great deal of this business at a commensurate rate. 

Mr. Edmonds. I think that is true. But if you were left alone I 
do not think it would stay here at the present time. Naturally, we 
are opposed to Government ownership- 

Mr. Parsons. I think we are all opposed to Government ownership. 

Mr. Edmonds. Yes; and I do not think we want to see it started. 
But certainly I do not want to stand in the road of a proposition 
that is not going to benefit Americans. That is the way I feel about 
it. If Mr. Hurley thinks that is a good thing, and if Mr. Payne 
thinks that is a good thing, I am not going to stand in the road 
of it if it is not going to benefit American companies if we are going 
to pay possibly a hundred or two hundred million dollars a year in 
premiums to foreign companies. I would just as leave see it stay in 
the United States Treasury, whatever profit there would be in it, 
and possibly it might be just as well that we do that. 

There is a suggestion here, Mr. Parsons, of supervising packages; 
you do that in New York now, don’t you, to a certain extent? 

Mr. Parsons. Yes; to a certain extent it is done in New York, but 
not to a very appreciable extent. 

Mr. Chindblom. Is it done to a larger extent in other places—in 
other countries? 

Mr. Parsons. I do not think so; not to my knowledge. 

Mr. Edmonds. No ; it is the inexperience of the American shipper 
that is making trouble nowadays. Have you done anything along 
an educational line—any of your insurance companies—to show 
people how to pack goods for certain countries? 

Mr. Parsons. Oh, yes. Our inspectors very frequently visit the 
warehouses where the goods are boxed and cased and give them sug¬ 
gestion as to how they should be cased for export. Of course they 
have no control over the import business, which is generally a large 
business. 

Mr. Edmonds. The import business is generally taken better care 
of than the export business, because most of our people are inex¬ 
perienced in the export business? 

Mr. Parsons. I would not say that, because recently, on the goods 
sent over from the other side, the casing is very inferior, and I think 
possibly the packing done on this side is better. 

Mr. Edmonds. And that will improve as time goes on. 

Mr. Parsons. It is to be hoped it will. 

Mr. Edmonds. Our people are learning very fast. There is noth¬ 
ing that can be done to meet that situation that I know of. We 
certainly could not improve foreign packages coming in here, and 
if you folks take it up educationally it may improve the quality of 
the packages going out. 

Mr. Parsons. They are going to begin to improve the packing of 
the incoming freight for this reason: Many of the shippers are 
asking us to insure the risk of pilferage on the various commodities 
coming over from the other side, and we can only consider insuring 



296 


MARINE INSURANCE. 


the risk of pilferage where the goods are properly packed and the 
packages secure. And it is almost essential at the present time that 
pilferage insurance should be granted; and, if you refuse to grant 
it, it of necessity works to the betterment of the package. 

Mr. Chindblom. You are refusing to grant that? 

Mr. Parsons. We are; so far as we find there is carelessness in 
the packing of the goods we are refusing to grant that insurance. 
So in that way an effort is being made to improve the character of 
the package on the incoming commodities. 

Mr. Edmonds. What has influenced the increase in the rates on 
pilferage lately ? 

Mr. Parsons. It is difficult to assign any one cause, but I think 
the inadequate packing is accountable for it. It is very easy to rob 
a case of goods that is improperly packed. 

Mr. Chindblom. Has the quality of the crews improved? 

Mr. Parsons. Oh, yes; I think the crews are generally very much 
better; but it is not established that the crews do all the pilfering, 
by any means. 

Mr. Chindblom. With respect to the pilfering done, it must be 
done on the ship ? 

Mr. Parsons. Not necessarily; no. 

Mr. Chindblom. It is done before the goods reach the ship, and 
after they leave the ship ? 

Mr. Parsons. It is done after they leave the ship, and it is very 
often done, I think, in the public stores. 

Mr. Chindblom. Is that on account of the poor packages? 

Mr. Parsons. Largely so, because of the facility of getting into 
them. 

Mr. Edmonds. A man sees something he wants, and he takes it? 

Mr. Parsons. He takes it; and nails up the box very easily. 

Mr. Edmonds. I suppose you take care of that in your rate, too? 
Do you make a rate for pilferage ? 

Mr. Parsons. We make a rate, but we have found the rate we 
can charge is inadequate in proportion to the losses we have to pay. 

Mr. Edmonds. So you do not do any pilfering insurance? 

Mr. Parsons. We do pilfering insurance—but at a loss. 

Mr. Edmonds. Do you think a load-line law having to do only with 
registered ships would be useful? 

Mr. Parsons. I think a load-line law, any load-line law, would 
be useful; but I think- 

Mr. Edmonds. Because I think we can get that, you see; and that 
is the reason I am asking you the question. I am afraid we will 
have a fight on the coastwise end, and how would it do to take it 
piecemeal and put one through at a time ? 

Mr. Parsons. I, personally, do not believe in making two bites at 
a cherry. I think you ought to put the whole thing through. 

Mr. Edmonds. I know you don’t; but we may have to do that. 

Mr. Parsons. I think it is so essential to have it on all vessels. 

Mr. Edmonds. I agree with you there, and I am personally will¬ 
ing, myself, to take it as far as I can; but I know what we are up 
against, and I was just wondering if it would be useful if we started 
to get half of it at this time, and then took the other half and 
fought over it. 


MARINE INSURANCE. 


297 


Mr. Parsons. That would be a question of expediency. Of course, 
I can not answer that question; but I do think it is so essentia] to 
put it on. 

Mr. Edmonds. They have a load line on the Lakes? 

Mr. Parsons. No. 

Mr. Edmonds. Haven’t they got one on the Lakes, either? They 
just load the ship down in good weather and put her under water 
and run with the smokestack sticking up? 

Mr. Chubb. The Great Lakes Protective Association, made up 
of steamship owners, have some method of regulating the draft— 
I think particularly with regard to the amount of water over the 
shoal box, and it is worked out in that way. 

Mr. Edmonds. Do you want to make any other statement? 

Mr. Parsons. No;’I think not, 

Mr. Edmonds. All right, then; we will excuse you, and we thank 
you very much. 

TESTIMONY OF MR. CHARLES E. MATHER, OF PHILADELPHIA, 

PHILADELPHIA REPRESENTATIVE OF THE ATLANTIC MUTUAL, 

THE AETNA OF HARTFORD, THE BOSTON MARINE, AND THE 

PROVIDENCE-WASHINGTON. 

(The witness affirmed.) 

Mr. Edmonds. Mr. Mather, I think you are the first gentleman we 
have had before us in the brokerage line, unless Mr. McGee is in the 
brokerage line. No; he has an agency line. 

Mr. Chindblom. I think he has insisted he is not a broker. Is that 
right, Mr. McGee? 

Mr. McGee. Sir? 

Mr. Chindblom. Y r ou are not a broker? 

Mr. McGee. I am not a broker. 

Mr. Chindblom. I say I think you have insisted you are not a 
broker ? 

Mr. McGee. Insisted and persisted. 

Mr. Edmonds. I think you are the first person who has been before 
us of the brokerage line, and we would be glad to have you tell us 
something of your troubles. The other folks have been telling 
us of their troubles. I do not suppose you have any; you seem 
to be the wicked end of the line; you raise all the trouble. I 
do not mean you personally, but your line. 

Mr. Mather. Mr. Chairman, I am very glad, indeed, to tell you 
what I know about it. 

Mr. Edmonds. About them or about it? 

Mr. Mather. About it—the subject. 

Mr. Edmonds. I thought you were going to tell us about these 
insurance companies ? 

Mr. Mather. I would not dare to do that in the presence of so 
many of them. I am both an agent and a broker. As Mr. Parsons 
has told you that they have representatives, I am the representative 
of the Atlantic Mutual at Philadelphia, the Aetna of Hartford, the 
Boston Marine, and the Providence-Washington, and those are 
American companies for which I underwrite every day. I am also 
at the same time the agent of the British and Foreign Marine and 


298 


MARINE INSURANCE. 


the Commercial Union, two British companies. I think I have been 
agent for the British and Foreign Marine since 1879. 

Now, what you want to know especially, I suppose, is the question 
of foreign insurance and domestic? 

Mr. Edmonds. Yes. We would like to get a general idea. 

Mr. Mather. My idea about that is this: The domestic companies 
have very greatly increased in number in the last few years. When 
I first engaged in business I do not think there were quite half a 
dozen of them in the United States. You know now the large 
number. 

On the subject of the London market, independent of whether you 
represent companies or whether you do not, you are asked by a mer¬ 
chant owning a fleet of vessels to do the best you can for him. He 
has a $10,000,000 fleet. One per cent on that is $100,000. Some of 
the large fleets have not made $100,000, some of these coastwise fleets. 

. for a good many years. He must have the lowest rate. You find 
with the agents and with the companies a difference of opinions. You 
go to London and you will find the same difference of opinion there. 
My choice is always to give the business to the American market at 
equal rates. That is not only my preference, but there is more money 
in it to me—more money; double the commission. 

Mr. Edmonds. And you are safer protected here, too? 

Mr. Mather. I do not feel that way, sir. I have not lost a penny 
on foreign insurance in many years. Now, I believe that any office in 
the United States of any size, almost daily, sends a cablegram to Lon¬ 
don for reinsurance. If they are doing any businuess at all, they do it 
very freely. I know there is not a day passes in our office that 8 to 
10 do not go. 

I want to tell you that the London market is a necessity to this 
country. Without Lloyd’s underwriters the world would be almost 
at a standstill. It is the great competitive market of the world— 
Lloyd’s London room. I am surprised that none of these gentlemen 
have recognized that fact. It is true; it is the great truth; they have 
the market of the world there. They have a great spread of busi¬ 
ness; it comes in from all over, everywhere. A London broker has 
cables from all over the world, every morning, to place insurance. 
We do not have that in New York; we have American business. 
That is the point; it is the great point. It is necessity. 

Now, you speak of builder’s insurance on vessels building by build¬ 
ers for the Navy. They have ahvays been insured by these build¬ 
ers. I have insured a good many of them for a number of years, and 
I have always given the American market all they would write. Until 
just recently the American market did not go much above $1,000,000, 
if they went that far. 

Mr. Edmonds. On builder’s risk? 

Mr. Mather. On builder’s risk. Recently it has been greatly 
increased, and recently, in New York, 19 destroyers at $1,500,000 
apiece were done all in New York. Yesterday I had occasion to place 
two boats of $6,000,000 each for the Government, and on account of the 
New York agencies having lines upon these other 19 building at the 
same yard, the most that we could get in America on those two ves¬ 
sels was $2,500,000 each. The other $3,500,000, after exhausting the 
markets of America, I cabled to London last night. Without that 


MARINE INSURANCE. 


299 


market, gentlemen, we would practically be at the mercy of a few men 
in this country who are experienced marine underwriters. 

I am speaking now as I feel and as the owner of a vessel would feel 
and as they do feel. You have had a great representation here as you 
say, Mr. Chairman, of the underwriters of this country. If you had 
got the men who own the vessels here they would have told you that 
they must have the lowest market. There is no escaping from it. 

Mr. Edmonds. I think that is recognized; we recognize that. 

Mr, Mather. Yes; they must have it. 

Mr. Edmonds. That is a matter of vital interest ? 

Mr. Mather. We do not go there from choice; we go there from 
necessity, and we must go there constantly—daily and hourly. 
Hourly! And I believe that every office and every man in this room 
in the insurance business is doing business almost daily—sends cable¬ 
grams to London for reinsurance almost as a daily proposition. 

Mr. Edmonds. Our returns would show a great deal of business 
going over there all the time. 

Mr. Mather. Surely. It goes from necessity. And so long as the 
American market could take it, it would all be taken. 

There was something said about reinsurance in London, that is, 
the proposition of reinsuring in London. I would let every Ameri¬ 
can company reinsure all they wanted in London; let them have the 
spread of business; let them exchange reinsurance if they can do it. 
Anything that the American companies can do that will make for 
the exchange of insurance with London is what they want to do, is 
what they all should do. But for many years some of them who are 
purely American would not encourage that particularly, others are 
represented abroad, and so on. 

Mr. Edmonds. Does reinsurance bring about much exchange in 
the business? 

Mr. Mather. It would bring about much exchange in the business. 

Mr. Edmonds. It would, but it has not- 

Mr. Mather. It has not been, largely because there has not been 
the market here for it. We will take, say a builder’s risk, and take 
British and foreign: I will write $50,000 in Philadelphia; I will 
give the New York office $50,000 (my account and their’s are 
separate), and I will send it to the London office and they will write 
$50,000. Now, we have $150,000 on that ship in that one company. 
Each of those offices has written all it can take, and they are all 
different accounts—separate accounts. If that ship is two or three 
years building, the London office will take a second $50,000 and put it 
into next year’s account. Now, I would not have the London office 
of any company deprived of writing all they can write on American 
business, whether they have an agent here, or whether they have not, 
for those reasons. 

This is not fire insurance; fire insurance is a different proposition 
altogether. Marine insurance is a competitive business with all the 
world, and you can not by any legislation say that American owners 
shall insure their vessels in the United States. You can not by legis¬ 
lation improve the condition of the American companies; it can not 
be done. Why, an owner of a fleet of ships writes to a broker in 
London: “ Do this for me,” and where are you? It is only a matter 
of two cents or three cents postage to do it. And believe me, they 



300 


MARINE INSURANCE. 


pay as quickly as American companies do. I have not had a loss in 
the last 10 years where I have collected any quicker from American 
companies than I have from the English. The fact of the matter 
is, that they rely a good deal upon whether they are settling up over 
there or not. What does the English market say about this ? That is 
in the mouth of every man. What is the market to-day in London? 
And why London? Because London is the center of the world for 
marine insurance. We would like to have New York the center. I 
am an American—a thorough American. I had two boys who 
fought in the war. My family came to Pennsylvania in 1682. You 
see, I am all American. But I want to tell you that this question of 
insurance is not an American proposition at all; it is a world propo¬ 
sition. You gentlemen are dealing with a very big and broad sub¬ 
ject—a very big and broad subject. You all know that*a man buying 
a cargo on the other side, can insure it over there or he can insure 
it here. 

Something has been said about a proposition about exports— 
companies to insure exports. There is nothing in that. 

Mr. Edwards. No ; we are talking about exporting of insurance. 

Mr. Mather. Oh, the exporting of insurance? 

Mr. Edmonds. Yes. 

Mr. Mather. I thought you were talking about insurance on 
exports. 

Mr. Edmonds. What we have been talking about, Mr. Mather, is 
this- 

Mr. Mather. I understand that now. 

Mr. Edmonds (continuing). Insurance that is exported. 

Mr. Mather. Yes. 

Mr. Edmonds. And it does not pay a proper tax here? 

Mr. Mather. No. 

Mr. Edmonds. And is that not an unjust situation against our 
companies ? 

Mr. Mather. Now I understand that. But I further understand 
that at the present time everything that we place there the policies 
come back here and we pay a per cent tax on them. That is the law 
to-day. 

Mr. Edmonds. That is the law, but these exported policies never 
come back. 

Mr. Mather. The exported policies? 

Mr. Edmonds. No. 

Mr. Mather. Well, the account comes back here. I do not think 
there is much insured from this side; I do not think there is much 
export business, you understand, goods—I do not think there is a very 
large amount really that is insured on the other side on orders from 
here. 

Mr. Edmonds. No; I do not think so. It is on the hulls, I think, 
mostly. 

Mr. Mather. That is the fault entirely of the American Govern¬ 
ment on hulls. No broker goes abroad for an American hull until 
he has exhausted this market at the rates they write it. If he finds 
the market in London is a quarter per cent of a half per cent lower, 
he takes it. He must take it. Why take it on $15,000,000, 1 per cent 
is $150,000. Do you think any owner would hesitate for a moment 
whether to save that $150,000 in London or to pay it here ? 



MARINE INSURANCE. 301 

London to-day is issuing policies in dollars. Something has been 
said about the exchange being lower; they are issuing policies in 
dollars to-day and there is no loss in exchange. No; I will tell you 
that the American company, that freedom from any legislation, free¬ 
dom of action is the best course. 

Mr. Edmonds. Now, Mr. Mather, j 7 ou have had a long experience 
in the insurance line? 

Mr. Mather. Fifty years. 

Mr. Edmonds. What is the situation to-day compared with what it 
was 10 years ago ? 

Mr. Mather. I believe it is altogether better. The amount of busi¬ 
ness that is done here to-day, in my opinion, is greatly in excess of 
what it was. # One gentleman told me to-day that their business had 
increased a million dollars a year. Take all of the large marine com¬ 
panies and, if you look at their figures, you will find they are very 
much greater in volume. The increase in the number of companies 
is the best evidence of that. They will take care of themselves. We 
can not legislate for the fellow who does not know how to under¬ 
write ; we can not do that. But if you will take the Boston or take 
the Atlantic Mutual of New York or take the North American of 
Philadelphia, what do you find? They have all increased, largely 
increased, their assets and surplus and all the rest of it. And that is 
what has encouraged the fire companies to come into the game. And 
they must stand on their own bottoms. 

Mr. Chindblom. Briefly, your attitude is to leave well enough 
alone; is that right ? 

Mr. Mather. That is my recommendation. You can not benefit 
this business one iota by legislation. You can benefit it by the load 
line. You can do that. But I can not conceive how any American 
company can be benefited by any preferential law to benefit them— 
so-called beneficial law. 

Mr. Edmonds. We are not talking about preferential laws, because in 
an international business of this character a preferential law would 
simply mean the business would go to the other country and would 
not come here. 

Mr. Mather. Exactly. Now, if it is not a preferential law, what 
is the use of having *any? 

Mr. Edmonds. Because it seems to me it might be helped by a 
little supervision. 

Mr. Mather. I think they are already suffering from too much 
supervision to-day, Mr. Chairman. Take the State of Massachu¬ 
setts, and the State of New York, their supervision is of the very 
best and so long as that supervision exists, I do not see the necessity 
for any other; but I admit if we could have one law, one United 
States law, where they made their one report, it would be vastly 
better for them all. 

Mr. Edmonds. Do you come under the insurance supervision too, 
as a broker? 

Mr. Mather. Oh, yes, indeed. We can not place any fire insur¬ 
ance except by application to the insurance commissioner of Penn¬ 
sylvania, that the particular risk that we want to place, that the 
market of this countrv is exhausted, then he will give us a license 
and we pay a tax. There is nothing of that kind in marine insur¬ 
ance. Everybody is free to do it wherever they wish to do it. 


302 


MARINE INSURANCE. 


Mr. Edmonds. It is an international business, and naturally has 
to be. 

Mr. Matheb. It is international. But in fire—take fire insurance 
for instance—no one ever thinks of any one going abroad for fire 
insurance except for excess lines. We are satisfied with the rates 
that are made in this country. But that is a different matter from 
marine insurance which is a competitive world insurance, and neces¬ 
sarily must be. 

Mr. Edmonds. You have an office here, and you have an office in 
London and you know something about what they do in England 
and what they do here. I)o they do anything over in England 
that you could tell us, that is different from the way we do it over 
here, that is an advantage to the business generally? 

Mr. Mather. I can not say that I can, because the offices here are 
well located and well supplied. They probably pay higher wages 
here than they do over there, and I do not think that their employees 
as a whole- are quite as expert. London will have more expert men 
at a lower price than we can get them for here, because there they 
have been brought up to it and here there has been such an increase 
in demand for employees in marine companies of late that wages 
have gone up very considerably. But I will say this, that Lloyd’s 
rules, their simple methods, you know, of doing business, lend them¬ 
selves to a low cost. 

Mr. Edmonds. I think that is true of Lloyd’s, but Lloyd’s can not 
write all the insurance and does not write all the insurance. 

Mr. Mather. No, they do not. But the marine companies have 
an easier way of doing business. I can not say exactly what it is, 
but they seem to go along very quietly and very pleasantly. The 
business is all handled very largely by brokers over there who under¬ 
stand the game, and I can only say that they seem to get along at 
a lower expense ratio and they never seem to be excited or in a 
hurry. I have spent weeks at a time in London, and they go along 
quietly and accomplish the result. 

Mr. Edmonds. 'There is no question about their accomplishing the 
result when they get two-thirds of our marine insurance over here. 

Mr. Mather. I can not say what per cent they get. 

Mr. Edmonds. It was in the statement made yesterday. You 
will probably get it in the hearings. 

Mr. Mather. About two-thirds? 

Mr. Edmonds. About two-thirds. 

Mr. Mather. I should certainly say for hulls, that they do get it. 

Mr. Edmonds. That does not count export insurance, because we 
could get no record of that. Probably you could add a very fair 
sum on top of that two-thirds, if you included that. 

Mr. Mather. I do not think there is much cargo insurance cabled 
abroad, that can be handled in this country. 

Mr. Edmonds. And it can fairly well be handled now, can it not? 

Mr. Mather. As a rule, there is no trouble about handling cargo. 
I do not think there is much of that handled by cable except the com¬ 
panies themselves get large lines, and they will reinsure; but if the 
rate is not right, then the other side will handle it; the receiver will 
handle it if the rate is not right. 


MARINE INSURANCE. 


303 


Mr. Edmonds. I understand in doing business- 

Mr. Mather. Things will be sold cost and freight, or cost, freight 
and insurance. If they are sold cost and freight, the merchant on 
the other side attends to the insurance; that is all. 

Mr. Edmonds. I understand an American broker doing business 
with a London company or with an English company is required to 
produce the money for the insurance very quickly as compared with 
what time the American companies make him produce the money ? 

Mr. Mather. I do not quite catch that. 

Mr. Edmonds. If the American broker insures in England- 

Mr. Mather. Yes. 

Mr. Edmonds. He has to pay the premium very quickly to the Eng¬ 
lish company—on very short terms? 

Mr. Mather. He pays on the first of every month. 

Mr. Edmonds. And the American companies generally have to wait 
quite a little while for their money? 

Mr. Mather. Yes; that is often so. But the question as to when 
it is paid for does not enter into the proposition. 

Mr. Edmonds. Does the rebate business go on over there the same 
as it does over here ? 

Mr. Mather. Do you mean to say the 10 per cent ? 

Mr. Edmonds. The adjustment that may be made between the 
broker and his customer. 

Mr. Mather. I should say over there—you know the English com¬ 
panies allow 5 per cent brokerage and 10 per cent on top of that, and 
that 10 per cent, I think, always goes to the assured. It does with 
me always, here. I never keep the 15 per cent unless it is on small 
matters. 

Mr. Edmonds. Did you ever get in that shape where you went out 
and paid a man to let you do his insurance? We heard of that yes¬ 
terday. 

Mr. Mather. How is that ? 

Mr. Edmonds. Did you ever pay a man for the privilege of doing 
his insurance business ? 

Mr. Mather. No, sir; I have never done that. 

Mr. Edmonds. You have not reached that point? 

Mr. Mather. No. I calculate on being paid for my insurance 
every time. But the 10 per cent, I would feel I was robbing a man 
if I did not give that to him. 

Mr. Edmonds. Over here you are allowed to do the same thing ? 

Mr. Mather. Oh, yes. Here it is 5 and 10, and the 10 always goes 
to the assured, unless it might be some little, trivial matter. The 10 
per cent always goes to the assured. Now, if we would make 5 per 
cent, we would be doing fairly well. More often we make only 2J. 
That is the hull rate. The commission on a cargo here is usually 
10 per cent. It is 10 and 5 on cargo here. 

Mr. Edmonds. They still keep 5 and 10 on English ? 

Mr. Mather. The English would be 5 and 10. 

Mr. Chindblom. On cargo? 

Mr. Mather. On cargo; yes. 

Mr. Chindblom. And on the hull? 

Mr. Mather. On the hull it is the same thing—both places. 

Mr. Edmonds. Do you get that when you write through Lloyds’, 
too? 




304 


MARINE INSURANCE. 


Mr. Mather. The London broker gets 5 and' 10, and he shares his 
brokerage commission with us. AYe make 2| per cent each between 
us. This 5 per cent is divided. That may not be true with all, but 
it is true with us. 

Mr. Edmonds. Of course it is perfectly legal? 

Mr. Mather. Oh, that is a legitimate proposition. 

Mr. Chindblom. Did I understand you to say you gave the 10 per 
cent to the assured ? 

Mr. Mather. Always; invariably. I am speaking now of large 
transactions. That is the rule. 

Mr. Edmonds. Do either English or American companies try to 
get you to divert business from one company to another and pay 
you extra commissions for that? 

Mr. Mather. No; I have never had any experience of that kind. 
They do what they can with what you send them, but I have never 
had any request of that character. 

Mr. Edmonds. It is stated here in some cases the brokers got ex¬ 
cess commissions if they would divert certain lines. 

Mr. Mather. I never did. 

Mr. Edmonds. If they would divert certain lines of business that 
they were writing from one channel to another channel? 

Mr. Mather. AYe only send what we can not do on precisely the 
same terms as in America. If we can do it here it never goes. 

Mr. Edmonds. That is a very nice spirit and a very good spirit, 
and I hope we all have that. 

Do you think pooling companies would help the American com¬ 
panies any? 

Mr. Mather. Pooling? 

Mr. Edmonds. Yes. 

Mr. Mather. I do not think it can be done. It can be done in one 
or two lines of business, such as this burlap and so on, but in gen¬ 
eral business I do not think it is a feasible proposition. It never 
has been. One man will write what another man will discard, 
and he will write it at different rates and on different terms, because 
nearly everything stands on .its own basis; there are hardly any two 
things that are just alike. 

Mr. Edmonds. You are another one of the burlap pool, aren’t 
you? 

Mr. Mather. I think I have an interest in the burlap pool; yes, 
I think I have. 

Mr. Edmonds. Yes; you have four shares. 

Mr. Mather. Yes. 

Mr. Edmonds. Somebody let you have that. Somebody had IT and 
they wanted to let you in and they gave you four. It seems it was 
Mr. Simpson, wasn’t it? 

Mr. Mather. I think I have an interest in the British and For¬ 
eign. AYe are agents as well as brokers and we do a large amount 
of agency business, and we do burlap business, so they gave us a 
per cent of it for the British and Foreign and we put all of our 
burlap business in that company. In fact, it already was in that 
company. 

Mr. Edmonds. I think it is a good, legitimate proposition myself. 
I do not see anything wrong with it. 


MARINE INSURANCE. 


305 


Mr. Mather. No. 

Mr. Edmonds. The only thing b when the list was examined it is 
peculiar to see your firm along w th them. 

Mr. Mather. I am always for a good move to assist anything that 
can be done for the marine underwriters in general. I am always 
for it. 

Mr. Edmonds. Suppose you ®como along and give us some good 
suggestions. 

Mr. Mather. My suggestion is simply this, that at the present time 
or at ajiy future time, so far as I can see the future, there is so 
much competition in the marine bus. ness that the very best thing 
you can do for it is to leave it alone. Because you do not want 
to build up a monopoly against the assured. Now, mark you, that 
is my opinion. 

Mr. Edmonds. You can not build it up? 

Mr. Mather. You can not do that, gentlemen. The commerce of 
this country is too great. We have the underwriters here and all this 
business, and you can not build up a hard and fast proposition to force 
Americans to pay more money for marine insurance. You will tend 
to destroy commerce if you do that. The companies are only a small 
element; the men who pay these premiums, they are the men—they 
are the people. You talk to a man who owns $10,000,000 of ships, as I 
did the other day to one with $25,000,000 of ships, and now I want to 
tell you it is a big proposition whether he pays 3^ or whether he pays 
4 per cent. You see, a half a per cent on that amount of money is a 
big lot of money. And these coastwise lines to-day are all in distress. 
They are in distress. 

Mr. Chindblom. Why? 

Mr. Mather. The freights are not sufficient to meet their expenses; 
that is their difficulty. They have had the increase in expenses, and 
they have not been allowed to pass a penny more on to their freights. 
The coal bills are heavier and all their expenses are heavier. And 
when the question of insurance comes around, and it is a big sum of 
money, I want to tell you they deal with you very sharply; they have 
to be assured that is the last word. 

Mr. Edmonds. They handle their insurance on a pretty loose sort of 
policy; isn’t it in a blanket policy ? 

Mr. Mather. No; they make a schedule of values. 

Mr. Edmonds. On each vo}^age? 

Mr. Mather. Oh, no; I am speaking of hulls now. No; cargoes are 
done under open policies. 1 am speaking now of the hulls. They deal 
very closely, on account of what they pay for rates. Now, that is 
a very important thing. That is on the hulls. Anything you say or 
do that will oblige those people to insure their hulls in America is a 
very dangerous thing to attempt to do. 

Now, I have the highest regard for all the underwriters in this 
room, personally and otherwise, but I will tell you human nature is 
human nature, and if you put through a bill that will make the hull 
owners in America insure them in America, they are going to make 
rates which they think will pay them. And I want to tell you the 
man who pays that rate has some say as to what that rate should be. 
It would not be right to allow half a dozen men—they may be the 
best-posted men in the country; but I want to tell you human nature 

160770—20-20 


306 


MARINE INSURANCE. 


is such that if you give them the power you can not say just what 
they will do. They may want to help you; there may be half a dozen 
men who want to do it. But you are sitting around the board and 
there will be a dozen men there, and eight or ten or six or eight will 
say, “ Oh, well; we have had a bad experience, and this rate must 
be so-and-so.” You can not do that, gentlemen; you can not impose 
that upon the vessel owner of the United States. It can not be done. 
He must have the market of the world wherever that may be. 

Mr. Chindblom. You do not mean that the purchaser of an insur¬ 
ance is consulted in any other way except that he has the .privilege 
of going around to find the cheapest rate? 

Mr. Mather. That is it; that is all; and he must have that right. 
If you make a law that he must insure in American companies, then 
you are doing that man an-injury. 

Mr. Chindblom. The question that I can see is not so much the 
establishment of any regulation of rates. Of course, your position 
is perfectly good either way. If the American insurance companies 
go out of business, of course you will continue to insure in English 
companies, and so will every other agent, because he has no other 
place to go to sell his goods. 

Mr. Mather. I do not want to drive them out of business. 

Mr. Edmonds. Oh, no. 

Mr. Mather. But what I want them to do is to do it as low as the 
insurance market of the world will do it. 

Mr. Edmonds. What w T e are driving at and want to have is to see 
whether we can not get our companies in such shape that they can 
do it as low as anybody else and hold down the business. 

Mr. Mather. It can only be done by companies then, Mr. Edmonds. 

Mr. Chindblom. What has been your experience? Have the 
American companies in your opinion heretofore made as low rates 
as would be compatible with all the elements involved ? 

Mr. Mather. I can say the Atlantic Mutual has done it. 

Mr. Chindblom. That is only one of them. 

Mr. Mather. I know that company has done it. 

Mr. Chindblom. What about the rest? 

Mr. Mather. I have usually been able to get from Chubb & Son, 
not always—I have usually done a certain per cent in America on 
every hull I have placed. 

Mr. Chindblom. Do you think you get as low rates as they can 
give in justice to their own interests? 

Mr. Mather. I think so. 

Mr. Chindblom. Generally speaking. 

Mr. Mather. I think so; because I tell them “ This is what Lon¬ 
don has done; I am sorry; I would like to give you more but I can 
not do it; What will you do?” 

Mr. Chindblom. Do you give them a chance to meet London? 

Mr. Mather. I do every time. And more than that, I never place 
over 50 per cent of a fleet in London; I always keep 50 per cent of a 
fleet for this country. 

Mr. Edmonds. It was testified you had all the insurance of the 
Navy Department during the war at a time when it was'very hard 
to get insurance here, and that you decided—I think the testimony 
was to place all of it on the other side. Was that right? 


MARINE INSURANCE. 


307 


Mr. Mather. I have heard gentlemen state that here, but I do not 
think they were conversant with the facts. I never placed the whole 
line on any vessel abroad. I have always written these builder’s risks 
at Philadelphia with the companies that would write them. I have 
done it largely with the North American and largely with Chubb. 
It is true that the Atlantic have not written builder’s risk freely for 
some reason; I do not know exactly why. But I have always placed 
a certain per cent in the United States; all that we could do on the 
terms that were offered. 

Mr. Chindblom. These Navy boats in mind now in Mr. Edmond’s 
question, how much of the insurance on those boats was placed with 
American companies ? 

Mr. Mather. You are speaking now of the vessels building for the 
United States Navy? 

Mr. Chindblom. Yes. 

Mr. Mather. As I told you, the one reason the American com¬ 
panies have broadened out on that score, a number of the fire com¬ 
panies that heretofore did not look at those risks have come around 
and said they would write them. The 19 steamers of a million and a 
half each were all done in this country. Then after that I had two or 
three of two millions, and I did them all in this country. And then 
lately I have had three or four of six millions each, battle cruisers, 
and we tried to do every penny we could in this country and we got 
two millions and a half. Now, I think if these people had not been 
pretty full on the other boats, they would probably have taken more. 
But you see if a man has 19 boats at a million and half apiece, build¬ 
ing at one yard, there is a limit to his capacity. 

Mr. Edmonds. He has his line filled up and he does not want to go 
any further? 

Mr. Mather. No. Now, we get a $12,000,000 boat, and of necessity 
we must do a good deal of that abroad. If I get a $12,000,000 boat 
and my own people are not full on that yard, I might do four or five 
millions here. 

Mr. Edmonds. In going abroad you do not confine yourself to Eng¬ 
lish companies? 

Mr. Mather. I take whatever my London people, who are very 
careful people, give me. They do not give me French, they do not 
give me German, they do not give me continental companies, except 
those represented in London in reinsurance offices. I have never lost 
anything through dealing with that office. 

Mr. Chindblom. Do you get much Japanese? 

Mr. Mather. No. 

Mr. Chindblom. What do you get outside of English? 

Mr. Mather. You get a certain number of Norwegian, a few 
French—a very few—and you did before the war get a certain num¬ 
ber of continental companies, high class, but none since. 

Mr. Chindblom. What do you mean by “continental”? 

Mr. Mather. I mean by that German, Austrian, and so on, you 
know. We get some Swiss companies, but very few Italian or Span¬ 
ish. Practically, we deal very little with anything on the Continent. 
I do not take the French and Spanish offices whatever. I do not 
think we know enough about them. 

Mr. Chindblom. Was there before the war much Russian money m 
this business? 


308 


MARINE INSURANCE. 


Mr. Mather. Well, one or two companies; yes—the Rossia was 
one. There was not much. There were one or two, but they were 
never very much of a factor. 

Mr. Edmonds. Mr. Mather, when you take a policy, or when you 
have some insurance brought to your office, do you have the rate right 
there to give them? 

Mr. Mather. Let me explain that. 

Mr. Edmonds. Suppose I came into your office and wanted to in¬ 
sure a cargo. 

Mr. Mather. Yes. 

Mr. Edmonds. Could you give me a rate right off for it ? 

Mr. Mather. Oh, yes. 

Mr. Edmonds. How is that rate made up ? 

Mr. Mather. It is really made up from your experience of what 
the market is. If the vessel was an unusual one, a sailing vessel, or 
a steamer that was a little off, I would not give it to you right off; 
I would look at the vessel very carefully, see how much you wanted, 
and all that. Every case, of course, is subject to its own decision. An 
experienced underwriter would know right away if it was a first- 
class risk or if it was not. If it is by a good line steamer, of course, 
he would take it at once. If its is a boat he does not know, he has 
to look at it pretty carefully. 

Mr. Edmonds. Then you take the policy, having taken it on your 
experience, which is a first-class experience, you take the policy to 
some company? 

Mr. Mather. That is it. 

Mr. Edmonds. And you want that company to place it at the rate 
you took it. Do you have to fight with them about the rate ? 

Mr. Mather. I am acting in the capacity of a broker; I do not do 
any underwriting myself. I used to do it, but now I have two or 
three men who sit there and underwrite, and they have all these facts 
before them. They treat everything separately. If they come to me, 
it is on some general proposition. If the man calls me and says, “ I 
want a big line of insurance,” I will have to consider what the mar¬ 
ket is. If I know, I wfill tell him right off, “ It is so-and-so.” You 
understand. Then he will leave it with me perhaps to do it at about 
that rate. Those are all matters that are special, but usually the 
rates do not differ much. But if the account is pretty fine maybe 
5 or 10 cents will be the toss whether he will do it or not. 

Mr. Edmonds. It seems to me it is a very expert business. 

Mr. Mather. It is a very expert business, and you will probably 
not find any two underwriters exactly agreeing on the proposition. 
If you go and talk to one man, he will say u my thought about it is 
so and so,” and you show him what you are doing about it, and if you 
get two or three good leaders the others will follow*along. A good 
leader is an important thing in this business, you know, the same as 
it is in London. There a man is a leader in one line of business, and 
he will lead that line. They have a very simple Avav of doing things 
there. If it is hull, you will try to get one or two of the hull leaders, 
and if you have a leader a man will have no trouble. On some other 
business you will go to some other. There are men who are experts 
along different lines, different trades. They will each 'lead in a cer¬ 
tain business. A good leader is almost essential. 


MARINE INSURANCE. 309 

have? ^ DMo:NTDS ' ^ an we not more men expert in this line than we 

Mr. Mather. I think we have more expert men to-day than we 
ever had, because w r e have more companies, we have more under¬ 
writers, and while I recognize that the last few months have been 
rather troublesome, because you know they have had some pretty 
heavy losses just recently, still, on the whole, I feel that the business 
or marine insurance to-day is in a very healthy condition. The rates 
are low, but they have been through profitable years during the war, 
m the war element. They have not done so well perhaps in the 
marine, but I do not think there is anything to complain of. 

Mr. Edmonds. It is suggested that the adjustment of small losses, 
however, in the hands of the general broker is sometimes used to make 
business, is that true ? 

Mr. Mather. Well, I do not think that is true. I think a man likes 
to deal, a large vessel owner likes to deal with a firm that knows how 
to make an adjustment, but I do not think the fact that they make 
that adjustment has any effect upon the mind of the underwriter. 
If that adjustment is not right it will be turned down that quick, if 
you do not make it right. If you do make it right you have got 
always to contend with your principals. They invariably want to 
put something in. We have got to say, “ That can not go in.” There 
may be the best intentions in the world. “ This has got to be charged 
to the owners, so much of this bill.” You have got to do all those 
things, and that is another expert proposition. But I do say that 
the man who has the facilities for adjusting can particularly control 
hulls, because a man who has the hulls to place wants to feel that 
the man he is placing them with can adjust his losses or prepare the 
adjustment. We do not state what the loss shall be. We give notice 
to call in the surveyors, and the survey is made generally according to 
fixed rules. If you follow that out you have a very simple proposi¬ 
tion. If you do not follow it out you have a troublesome time. 

Mr. Edmonds. We had the idea that it would be a very nice thing 
if we could do something to arrange an American bureau of registry. 
We noticed that the Scandinavian countries have got their own 
bureau of registry, Germany has her own bureau of registry, France 
has her own bureau of registry, and we thought it would be a very 
nice thing if we had our bureau of registry. As long as we are the 
second largest maritime nation in the world to-day, it seemed to us 
that it would be justified. 

Mr. Mather. We have at the present time in this country a splen¬ 
did bureau. 

Mr. Edmonds. That is what I mean, an American bureau of reg¬ 
istry. 

Mr. Mather. I have taken an active interest in that and it has 
been a very old established thing. At one time there were compara¬ 
tively few interested in it. The Atlantic Mutual kept it alive, and 
then when the men came forward and wanted to control it they 
turned it all over to them and said, “ Here it is now and will be one 
of you.” But Mr. Taylor has been very active, and they have got a 
very large proposition in the work that is being built for the Gov¬ 
ernment, for the Shipping Board. They have got a very large pro¬ 
portion of all the new work that is being built for the Government, 
for the Shipping Board. 


310 


MARINE INSURANCE. 


Mr. Edmonds. They have secured* a fair proportion of it? 

Mr. Mather. They have secured a fair proportion of it, but they 
are well equipped with surveyors, and I think they have made won¬ 
derful progress during the last year or two. 

Mr. Edmonds. There has been a fair amount of antagonism, too, 
against it among men who I almost feel ought to be in favor of it. 

Mr. Mather. Yes. 

Mr. Edmonds. I have often wondered why that was. I see you 
were on the executive committee and you are chairman of the finance 
and auditing committee. We could not have a better man on that. 

Mr. Mather. Well, it is a very useful proposition, and I am heart¬ 
ily in favor of it, and I know at the present time the work they are 
doing is of the very best character. 

Mr. Edmonds. And their facilities, I believe, are increasing daily ? 

Mr. Mather. We can not deal without a big American registry; 
you may know that. 

Mr. Edmonds. It seemed to be our opinion, in hearing the story, 
that we could not do without a big American registry. Why should 
the bureau of registry of France or Germany or any other country 
be recognized in preference to the American registry, when we are 
the second largest maritime nation in the world ? And yet there are 
certain insurance men in this country who are antagonistic to the 
establishment of this bureau. 

Mr. Mather. I know that is true, but I have not been in harmony 
with that element. 

Mr. Edmonds. I am very glad to hear that. 

Mr. Mather. I am thoroughly American and in sympathy with 
everything that goes for Americanism. 

Mr. Edmonds. We are very anxious, too, about our bureau, you 
see. I guess that is the way to put it. 

Mr. Mather. That is right. I am only saying, in reference to 
marine insurance, that it is an international proposition, and there 
is this thought I would like to add, that vessel property at the pres¬ 
ent time has greatly increased in value by the cost of construction, 
the cost of repairs, and all that sort of thing, easily double what 
they were, and added to that, all commodities seem to be higher in 
value. Added to that the vessels are larger. Now, if you consider 
those things, the increased value of a vessel of 10,000 or 20,000 tons 
crossing the Atlantic, she has got a tremendous value, and that can 
only be insured by the combination of all the companies, both 
European and American—and by European I mean, of course, largely 
English. 

Mr. Edmonds. If the English were to send over here an equal 
amount of insurance to what we send over there it would mean a 
spread in* the risk that would be very beneficial. 

Mr. Mather. That is something 1 would like to see brought about, 
a spread of the business. 

Mr. Edmonds. They do not seem to be willing to do that; they 
do not seem to be sending over here as much insurance as we send 
over there. 

Mr. Mather. No; nothing like. I know there are certain Ameri¬ 
can companies who have contracts abroad, and it is a very great 
Wdship. They have to pay taxes on this foreign reinsurance, and 


MARINE INSURANCE. 


311 


they are not credited with it in the accounts in New York, and if 
it is hulls it makes a pretty serious tax upon them, because the losses 
on it in process of collection would also be disallowed, I believe. 
So there are all those things to make it a little difficult. 

Mr. Edmonds. That is from the broker’s viewpoint? 

Mr. Mather. Yes. Well, it is from the viewpoint of all the com¬ 
panies doing that business. It materially affects the amount of hull 
placed in the United States. 

Mr. Edmonds. I like your end of the business. If I were to go into 
the business I would go into your end. I like the broker’s end. 

Mr. Mather. It is an end of the business where you are never 
done, and you are every moment alert. You do not know what 
question is going to come before you to-morrow. 

Mr. Edmonds. That is true, but don’t you see you can reach around 
and you go to these other fellows and tell them, “ I will put this over 
in England. If you do not take it, I will put it over there,” and 
you bat it back and forth, and you have that means of making good. 

Mr. Mather. That is true; you can do that in the interest of the 
client. 

Mr. Chindblom. You say you are never done. Do you mean 
nobody can do you ? 

Mr. Mather. No; I will not say that, because I have been done. 
It is a question simply of doing your best always for your client, 
and to do it with good companies where we know you are going 
to get your losses if you have them, and I think that is about the 
story. 

Mr. Edmonds. I used to do business with Mr. Mather myself. 

Mr. Mather. Well, I am glad to know that. 

Mr. Edmonds. You never did me, and I never did you. 

Mr. Mather. No. 

Mr. Edmonds. I think we were at a stand-off at the end of the time. 

Mr. Mather. Well, we try to treat everybody fairly. That has 
been the policy of the house. 

Mr. Edmonds. Well, it is a very satisfactory house to deal with, 
and we never had any trouble. Although mine was a little local 
business and did not amount to much, at the same time it was grist 
that went to the mill, and we never found any fault with your rate, 
because I think the rates were always established in our line of 
business. 

Mr. Mather. It is unfortunate that in marine business you have 
to establish a rate almost for everything you do. 

Mr. Chindblom. Do you every confer with other people in your 
line of business about the matter of rates ? 

Mr. Mather. Rates? 

Mr. Chindblom. Yes. 

Mr. Mather. All the time. 

Mr. Chindblom. How are those conferences held? 

Mr. Mather. They are held by simply going in and saying, “ Here 
is something I want to insure. What will you do it at ? ” 

Mr. Chindblom. That is the only way, and you do not get together 
and hold meetings for the purpose of seeing what rates can be estab¬ 
lished ? 

Mr. Mather. No. 


312 


MARINE INSURANCE. 


Mr. Chindblom. You do not think that could be done in this busi¬ 
ness ? 

Mr. Mather. It is done occasionally on certain lines of business, 
but it is not a feasible thing to do on a general business. You do it 
in 1 out of 100 cases, perhaps. It is the cargo you are insuring— 
that is, the vessel it goes by. It is the condition of averages that you 
want, but if the assured is a good party, that goes a great ways. 
There are so many different conditions. We can not sit down and 
say, “ This is so and so, and this is so and so.” You can not do it 
that way. We have got to take the judgment of the man who has 
written it. 

Mr. Edmonds. When these hearings are published I would be very 
glad indeed if you will just read over the statement made by the 
committee in the first part. We made a statement of the situation 
in regard to marine insurance, as we found it, by the examiners. 

Mr. Mather. Yes, sir. 

Mr. Edmonds. But, unfortunately, there is no copy of it here or I 
would give you one; but I would like to show you that we found that 
about two-thirds of our business was written in foreign countries, 
one-third here, and that is the thing we are trying to see whether 
T7e can not improve. 

Mr. Mather. Yes. 

Mr. Edmonds. We are not trying to regulate you, nor are we trying 
to make any law. We realize you have got to have a liquid business. 

Mr. Mather. They have now a bureau of underwriters, and many 
operate with agents. 

Mr. Edmonds. We want to see why they do not do that, too. 

Mr. Chindblom. How could they do it? You say they are in a 
bureau ? 

Mr. Mather. Well, they can open up a little more liberally, some 
of them, and can take larger lines. While the underwriting capacity 
has been increased, it has been increased more nominally as a matter 
of fact. They will take $5,000 or $10,000 up on a half or ton cargo, 
or 25 or 30. 

Mr. Edmonds. What insurance can you get out of the American 
companies now, if you went to all of them and they took the line? 
What can they take on a cargo? 

Mr. Mather. I guess, if you had a good risk, you could probably 
take the whole proposition, because some of them would take up a 
million dollars of $2,000,000. 

Mr. Edmonds. One company? 

Mr. Mather. Yes. 

Mr. Edmonds. Then we are now in pretty good shape? 

Mr. Mather. I think you are. If you came into my office and 
offered me a $2,000,000 cargo I would take it. 

Mr. Chindblom. And write it all in America? 

Mr. Mather. Right in my office. 

Mr. Chindblom. With no reinsurance? 

Mr. Mather. There would be reinsurance. 

Mr. Chindblom. A considerable part of it might afterwards have 
to be reinsured in London, might it not? 

Mr. Mather. It might. 

Mr. Chindblom. Then it is not written in America, not held here. 

Mr. Mather. It might not all be field, but it could be. 


MARINE INSURANCE. 


313 


Mr. Edmonds. Of course, when we speak of these two-thirds, that 
means reinsurance also? 

Mr. Mather. Where did you get the statistics there, Mr. Chair¬ 
man ? 

Mr. Edmonds. We sent out a questionnaire. 

Mr. Mather. And they came to you from the marine companies? 

Mr. Edmonds. We will probably be able to compile and publish, 
without using any of the confidential matter sent to us, a statement 
that will probably cover the marine insurance of this country very 
thoroughly. We sent out a questionnaire to all the companies, and 
they all answered it. 

Mr. Mather. I understand, but would the companies themselves 
know how much went abroad? Each would know what they sent 
abroad, but would they know how much has gone abroad? 

Mr. Edmonds. Then they would know their reinsurance. Of 
course, we could get no statitstics on their exported insurance. 

Mr. Thacher. When the chairman referred to exported insurance 
he refers to insurance sent from this country to an alien nonadmitted 
company. 

Mr. Edmonds. Not to an alien nonadmitted company. When I 
speak of exported insurance, the term, as we use it, means insurance 
sent over to the other side, that does not touch us at all, that pays 
no taxes, and does not go into any other company at all. 

Mr. Thacher. That is what I said, insurance sent out and written 
in companies not admitted to do business in the United States. That 
is exported insurance. 

Mr. Edmonds. There is a good deal of it sent out to companies that 
are admitted to do business in the United States. 

Mr. Thacher. I thought you had in mind insurance sent to alien 
companies not authorized to do business in the United States. 

Mr. Edmonds. Just assume, for instance, that Mr. Mather has a 
client whom he wants to make a good rate, a cheap rate, and he has 
got a cheap London rate, and he does not want it to go through 
here, he can place that insurance in London, without touching his 
American office at all, and when placing it in London he would prob¬ 
ably place it in a dozen companies that are admitted here, and 
divided up among a lot that are not admitted, but it is insurance 
that does not touch the records of this country at all, therefore we 
are unable to get a record of it. We can get a record of anything 
that touches the insurance companies of this country. 

Mr. Mather. But we do in the way of hulls, Mr. Edmonds, which 
is practically what we send abroad, although a certain amount of 
war insurance we sent abroad, and the rates were lower there than 
they are here, and it so happens that where the rate in London to-day 
is lower than it is here we will send that cargo where the lowest rate 
is, as a rule. 

Mr. Edmonds. You are the representative of the man who does the 
insurance. 

Mr. Mather. We try always to do it in America if possible, be¬ 
cause. we represent these American companies, but we want to write 
all we can, but if we can not do it at the rates that are current else¬ 
where then we let it go to the other side. 


314 


MARINE INSURANCE. 


Mr. Chindblom. If any commission comes back to you, that goes 
into your hands, of course? 

Mr. Mather. Yes. 

Mr. Edmonds. That covers the excess-profit tax? 

Mr. Mathers. Oh, everything we do on the other side, the policy 
always comes to us in America. I have never placed a risk on the 
other side that the policy does not come here with a 3 per cent stamp. 

Mr. Edmonds. In that case you have got to pay the tax here, too ? 

Mr. Mather. Always. That is on everything we do. I do not 
know of a single risk that we have placed on the other side where 
the policy has not come to America bearing a 3 per cent stamp. If 
a man over there buys anything, it goes free to the receiver. If he 
places the insurance, then there is no transaction in this country at 
all; but wherever the transaction is in this country the policy comes 
here and we deliever it to our assured and put the 3-cent stamp on it. 

Mr. Edmonds. But you do through your London office business 
with nonaclmitted companies here, too? 

Mr. Mather. Yes; Lloyd’s and all the rest of them, as I say, the 
London man who writes a policy over there writes it on a London 
account, without reference to what is being done in the United States 
whatever, and you can not shut that man off from writing that ac¬ 
count; it can not be done. He will always write it over there. You 
can not make a law that an English company represented in America 
can not write a marine risk over their own counter in London, be¬ 
cause they will write everywhere all over the world. That can not 
be done, gentlemen. 

Mr. Edmonds. What can we do to get all that moved over here and 
make this the center for insurance? 

Mr. Mather. By just simply educating our people to a point where 
they will become as keen and as expert as the London underwriter 
and learn to conduct their business with the same carefulness that 
they do over there. Then it will come. Nobody goes over there from 
preference; no one goes there from preference. It is necessity. You 
see, we are young in this game. We have only just recently got into 
this heavy export business. We have only recently been the second 
nation in vessel owning, and I think now we have some 8,000,000 tons 
of steel vessels. 

Mr. Edmonds. We have 8,000,000 tons now, and I think they have 
nearly 18,000,000. 

Mr. Mather. London has 16,000,000. That is a wonderful show¬ 
ing. 

Mr. Edmonds. We have got 13,000,000 tons now, and London 
18,000,000. I think that is the way we stand now. 

Mr. Mather. Yes. That will increase the American companies 
and increase business all around. 

Mr. Edmonds. We are hunting for some kind of fertilizer to put 
around the roots to make them grow more quickly. If you will only 
tell us what k'nd of fertilizer is necessary we will be able to go ahead. 

Mr. Mather. Gentlemen, I think you are in a good cause, but I do 
not want to see anything done with that desire which will upset the 
result. 

Mr. Edmonds. We do not want to. We think there is a fertilizer 
that ought to go to the roots of this thing and make it grow rapidly, 


MARINE INSURANCE. 


315 


and we are trying to find it. There have been some very' good sug¬ 
gestions made here, too. 

Mr. Mather. I do not know of any fertilizer that you can use that 
will reach the shipper or the vessel owner. He is the man, and there 
are hundreds of them. They do not ask us where we are going to do 
it or anything about it. They say, “ Do this.” 

Mr. Chindblom. Take in the matter of hulls. The vessel owner, 
the purchaser of the insurance, may have an advantage right now, 
but suppose eventually that is going to work out very much to his 
disadvantage by certain American business, writing hull insurance, 
then is it not the province of this committee to look to the future and 
not merely to look after the present advantage, but to prepare for the 
day to come? 

Mr. Mather. If hull rates are too low to-day the American com¬ 
pany does not lose anything by not taking them. It does not cost 
them anything to say, “ No, I do not want that risk.” They are 
not depleting their capital or surplus or anything else if they only, 
“ No, I do not want it.” The minute that rate goes up and they 
can take it they will always have it offered to them again. 

Mr. Chindblom. In the meantime the American companies are 
not growing on the hull business. 

Mr. Mather. No. So long as the hull business can be done lower 
in London than in New York it will go to London. 

Mr. Edmonds. Mr. Mather, it was testified here, and not con¬ 
tradicted at all, that the English companies had raised their rates 
on everybody’s hulls but ours about two or three times in the last 
year or so, and that they had left the hull rate low purposely in 
this country to destroy, if possible, our insurance companies. 

Mr. Mather. I do not think that is so. I have never seen the 
slightest indication of that. If you take the builders’ risks, our 
rates for builders’ risks are lower than London. 

Mr. Edmonds. You mean the rates of American companies for 
builders’ risks? 

Mr. Mather. The American companies’ rates for builders’ risks 
to-day are lower than London, and London is writing American 
builders’ risks for less money than they write their own. 

Mr. Edmonds. Naturally, it must be that the London hull rates 
are lower than here. 

Mr. Mather. One minute. That is done because we consider that 
American prices are made under more favorable circumstances than 
they are on the English coast. 

Mr. Edmonds. That is in builders’ risks ? 

Mr. Mather. Yes. When you talk about hulls there is no way 
you can compare the American hull, which is largely an American 
coastwise proposition up to the present time. 

Mr. Edmonds. Yes; because of the insurance and the-- 

Mr. Mather. There is no way you can compare that risk with 
the world privileges such as England has, and if they ever ad¬ 
vance their hulls,, with the exception of the United States hulls, then 
I would say that they had made money on the United States 
hulls, in my answer to it. I have never thought that they have 
ever had in their minds the proposition of destroying the American 
market. I do not believe that at all. That is a fancy that runs 



316 


MARINE INSURANCE. 


through the minds of some, but a man who writes a hull in London 
writes it because he believes it is good business to do it at that 
rate and he can make money out of it. 

Mr. Edmonds. Is it not true that they make a higher rate on 
hulls for other countries than they do for American hulls? 

Mr. Mather. I think it is true that they would make a higher 
rate for Italian and Spanish, because we all do. 

Mr. Edmonds. How about their own hulls ? 

Mr. Mather. Their own hulls would all be treated according to 
their merits. You take the Cunard Line and you get a rate lower 
than you ever conceived of for an American hull. They write all 
those lines very low. I have had them send lines over here that no 
one in America would touch. If they did, they would be a very 
small proposition. 

Mr. Edmonds. It was suggested this morning that if we had more 
reinsurance companies here that we would be in better shape. 

Mr. Mather. There is no doubt about that. That is a good prop¬ 
osition. If you had more reinsurance companies they would rein¬ 
sure the companies here, and you could hold it here. 

Mr. Edmonds. Reinsurance companies doing only a reinsurance 
business ? 

Mr. Mather. Yes. There are one or two. The Rossia is one. 

Mr. Edmonds. The Rossia is a new growth that has just come in? 

Mr. Mather. Yes; it is a Russian company located in Hartford, 
a reinsurance company, and very good. I believe their assets are 
all in this country and not affected by the proposition. 

Mr. Edmonds. Why is not capital attracted to go into these rein¬ 
surance companies, because they do not know anything about it? 

Mr. Mather. I think that is largely it, and they could go and buy 
the stock of well-established companies and it would be impossible 
to get anyone to go in. There is nothing more difficult than to get 
anybody to take stock in a marine insurance company. Old gentle¬ 
men have told me that at one time we had in Philadelphia 22 marine 
insurance companies, in the old days of Stephen Girard and some 
of those old fellows. He wrote Lloyds policies himself. He was 
one of several. He would insure elsewhere as well. He wrote all 
over the world to insure his cargoes. 

Mr. Edmonds. Yes. I suppose he would have to. 

Mr. Mather. Yes; but some time after his time we had 22 marine 
insurance companies in Philadelphia, but before the cable came 
along, and you see that changed the attitude. 

Mr. Edmonds. I think we ought to put a tax on the cabling over 
of any insurance policies. How would that do? Suppose every 
time you cabled over $100,000 we put a 4 per cent tax on $100,000 so 
as to make sure you would get it of enough size to make- sure we 
would get a tax on it? 

Mr. Mather. Gentlemen, do not forget that all these taxes you 
put on—you want to build up an American merchant marine, which 
is all right and it is a proper thing to do, but do not forget that it is 
the marine merchant you are legislating against when you do it. 
He is the man that pays it. 

Mr. Edmonds. He always pays the bill at the end ? 

Mr. Mather. He is the man that pays it. He will tell you when 
he comes down here, “ I want that policy so it will be in competition 


MARINE INSURANCE. 


317 


with the world. I do not want any legislation that is going to put a 
hazard on my shoulders.” 

Mr. Edmonds. Is there anything in our Pennsylvania law to pre¬ 
vent the formation of a big reinsurance company ? 

Mr. Mather. Nothing. 

Mr. Edmonds. Or the New York law? 

Mr. Mather. Nothing. They can form one to-morrow. 

Mr. Edmonds. It seems rather peculiar, considering the way busi¬ 
ness is expanding, that that has not been thought of. 

Mr. Mather. I think that the men who put up the money would 
prefer to have it so that they could take the first risk themselves 
rather than to reinsure. 

Mr. Edmonds. Well, reinsurance companies really do not have any¬ 
thing to do with the necessary judgment that goes into making the 
rates, because they merely take a rate that has already been supervised 
by another company? 

Mr. Mather. Yes. 

Mr. Edmonds. And if they are satisfied that the general judgment 
of that company is good they do not raise any question as to the re¬ 
insurance which they take? 

Mr. Mather. No; but they would have to be careful to get a con¬ 
tract that would give them an interest in everything that the other 
company wrote, a percentage of the other company’s business. If 
they did not have that they would get the tough risks put over on 
them. 

Mr. Thacher. It is not as sure a gain as you thought? 

Mr. Mather. Here is the thing we have to deal with always, here 
is the trouble in this business: Here is John Smith, who pays $100,000 
a year in marine premiums, and he has got a very few old vessels he 
has got to use. He is hard pressed in these war times, when vessels 
are scarce, and he had an old tub, and he must get it insured somehow. 
The company having his business must see him through. If they had 
a reinsurance company they could unload that on they would be very 
pleased. Those are all problems coming before these underwriters. 

Mr. Edmonds. I think some of these Shipping Board vessels will 
answer that description very well. 

Mr. Mather. I predict that inside of 12 months your vessels will 
be worth one-third less than they are to-day, and probably one-half. 

Mr. Edmonds. I made a statement on that the other day. I do not 
know whether it is true or not, but I said that when one of these 
Shipping Board vessels got to be three years old it was not going to 
be worth much more than $125 a ton. 

Mr. Mather. It will not be worth much more than that. I tell 
you, gentlemen, we are getting to a point where shortly our vessels 
will get down to normal conditions and where the vessel owner will 
have all he can do to struggle along. That is true of the coastwise 
business in the United States to-day, and I know that when the 
Southern Pacific and the Ocean and some of these lines are turned 
back by the director general, when that day comes they will have a 
hard struggle to make both ends meet. 

(Whereupon the committee adjourned, to meet Saturday, Sep¬ 
tember 27, 1919, at 10.30 o’clock a. m.) 


318 


MARINE INSURANCE. 


Washington, D. C., 
Saturday , September 1919. 

The subcommittee met at 10 o’clock a. m., Hon. George W. Ed¬ 
monds presiding. 

Mr. Edmonds. In the light, Mr. Chubb, of the instructions of the 
general committee to take up the Shipping Board insurance policies, 
on which we had one hearing at which you were not. present, we 
might just combine the two so as not to bring you down here any 
more than we have to, and we may take up some questions regarding 
the Shipping Board and your relations with them. 

TESTIMONY OF MR. HENDON CHUBB, OF NEW YORK, MEMBER OF 

THE FIRM OF CHUBB & SON, REPRESENTATIVES OF VARIOUS 

INSURANCE COMPANIES. 

Mr. Herndon Chubb was duly sworn by Mr. Edmonds. 

Mr. Edmonds. Will you give the stenographer your name and the 
name of the different concerns you represent, Mr. Chubb ? 

Mr. Chubb. My name is Hendon Chubb, 5 South William Street, 
New York. I am vice president of the Federal Insurance Co., of 
New Jersey. I am one of the firm of Chubb & Son, managers or at¬ 
torneys for the Federal Insurance Co., of New Jersey; the Sea In¬ 
surance Co., of Liverpool; the Marine Insurance Co., of London; 
the London Assurance Corporation; the Alliance Insurance Co., of 
London; the Hartford Fire Insurance Co., of Hartford, Conn.; the 
Merchants’ Assurance Corporation, of New York and Hartford. 
We are managers of their marine department and. also of the Mer¬ 
chants. Our title is “ managers of the marine department.” 

Mr. Edmonds. Did you want to make a statement, Mr. Chubb? 

Mr. Chubb. I have no particular statement to make at the present 
time, sir. I have several things I want to comment on, and 1 
thought especially as you were going to take up the question, you 
said, of the governmental matters there—— 

Mr. Edmonds. We will run them together, I think. 

Mr. Chubb. If you will give me an indication of what you want 
a statement on from me, I will be very glad to do it. 

Mr. Edmonds. Let us see just exactly the relationship between 
these different companies. One thing we had in mind: Chubb & 
Son are deeply interested in the Federal Co., are they not? 

Mr. Chubb. Yes. 

Mr. Edmonds. The Federal Co. was originated in 1901? 

Mr. Chubb. It was the outgrowth of the Lloyd’s Association 
formed in 1884. 

Mr. Edmonds. Was your concern made the agent or the manager 
of these foreign companies before 1884 or in 1901 ? 

Mr. Chubb. No; we are managers for the Sea Insurance Co. At 
the same time we formed the New York Marine Underwriters the 
firm of Chubb & Son was formed, and they took the management of 
the Sea Insurance Co. and also formed the Marine Underwriters, 
which later became the Federal Insurance Co. That New York 
Marine Underwriters, I may say, were agents of Lloyd’s. They 
afterwards became agents of Lloyd’s. 

Mr. Edmonds. Then you were representing these foreign com¬ 
panies at the time the Federal was formed? 



MARINE INSURANCE. 


319 


Mr. Chubb. The firm of Chubb & Son—it was before my time, I 
may say, but I think the two things were coincident—the firm of 
Chubb & Son was formed at the time the New York Marine Under¬ 
writers was formed. 

Mr. Edmonds. Did your family personally represent these com¬ 
panies ? 

Mr. Chubb. My brother represented the Sea Insurance Co. just 
about that time. 

Mr. Edmonds. Your brother is a director of the Sea Insurance Co. 
now ? 

Mr. Chubb. Yes; he is a director of the Sea Insurance Co. now. 

Mr. ‘Edmonds. Your brother is an American? 

Mr. Chubb. Yes. 

Mr. Edmonds. Was not your brother, during the war, on the 
English War Risk Board? 

Mr. Chubb. No ; nothing to do with it. 

Mr. Edmonds. Was not he connected with some of the English 
boards of trade ? 

Mr. Chubb. No; not in any way. He took up, at the request of 
the American underwriters, or he took it up with the—I could not 
say w T hether it was the board of trade there, but he took up on be¬ 
half of the American underwriters the question of the seized cotton 
cargoes at the time cotton was declared contraband. That was on 
behalf of the American underwriters. 

Mr. Edmonds. The matter was suggested that possibly he was 
in England so much that he was working in the English companies’ 
interest there. 

Mr. Chubb. The reason my brother was in England at that time 
was for a good many years he has gone over every year to a moor 
he has hired in Scotland, which he has had perhaps for five or six 
years, and when he went there a good many Americans went with 
him to shoot for five or six months. At the commencement of the 
war, he went over there in July just before the war broke out, and 
when the war broke out he tried to come back to America, but his 
wife’s health was such that the doctors would not let her come, and 
he would not leave his wife over there. He came back in 1915, and 
went back in about three months, and then was taken very ill, and 
he remained there practically incapacitated until the end of the 
war, and after he recovered he and his wife came back. I think 
there has been some misunderstanding about that point, and I would 
like to put it straight on the record. 

Mr. Edmonds. I am very glad to bring it out for your sake, because 
that has been suggested; and we are glad it is not so. 

Mr. Chubb. That is what I am anxious to do. 

Mr. Edmonds. Of course, the management of the Federal Co. 
comes pretty well under your hands now ? 

Mr. Chubb. Yes, sir. 

Mr. Edmonds. In looking over the reports, a very large percentage 
of the insurance in the Hartford and Federal and some of these 
companies seems to be reinsured in foreign admitted companies 
and a small percentage in foreign nonadmitted companies. Is there 
any particular reason for that? 

Mr. Chubb. Yes; there is a very particular reason for that. It 
is dealt with in two separate ways: First, the question of the foreign 


320 


MARINE INSURANCE. 


admitted companies. We represent, as you know, these companies 
I have referred to. They had business at the time we took them 
over, and their business developed; it has not developed to the same 
extent the Federal has, but it has developed—and we exchange busi¬ 
ness between the companies; that is to say, while we give 20 per cent 
of the Federal’s business to the Marine, the Marine gives 25 per cent 
of their business to the Federal—American business. 

Mr. Edmonds. Is that insurance imported over here; brought and 
placed over here ? 

Mr. Chubb. Oh, no; it is for American customers. 

Mr. Edmonds. American customers ? 

Mr. Chubb. Yes. 

Mr. Edmonds. I see what you mean. These are your agency 
offices here. 

Mr. Chubb. Yes; our agency offices here. 

Mr. Edmonds. Your manager’s office here? 

Mr. Chubb. Yes. 

Mr. Edmonds. Still you have in your own hands a good deal of the 
directing of that insurance, have you not? 

Mr. Chubb. Well, we direct it- 

Mr. Edmonds. You can direct it as manager; your manager’s office 
can direct that to British companies or American companies? 

Mr. Chubb. Only to a certain extent, Mr. Edmonds. It depends a 
great deal on what the people who bring the business to us want to do 
or where it has been before. For instance, as a matter of fact, we do 
direct, and, as a matter of fact, we direct most of the new business, as 
far as possible, to the Federal Insurance Co. That is natural, and we 
make no secret about it. If you came in and asked me for a policy 
and did not specify what company to put it in, we would put it in the 
Federal Insurance Co. 

Mr. Edmonds. Does not that raise complications to a certain extent 
with your foreign associates? 

Mr. Chubb. It would if they did not recognize it and know it. 

Mr. Edmonds. Does your concern have any controlling interest in 
these foreign companies? 

Mr. Chubb. It has practically no interest whatever. 

Mr. Edmonds. Mr. Percy Chubb is a director? 

Mr. Chubb. He was asked to be a director because they wanted to 
have his advice and assistance in handling certain situations. His 
interest in the Sea Insurance Co. is very, very small. I have no 
definite knowledge about it, but I doubt if it exceeds $25,000. 

Mr. Edmonds. Is any other member of your firm a director in for¬ 
eign companies? 

Mr. Chubb. No, sir; nor stockholder, as far as I know. 

Mr. Chindblom. Who constitutes your firm ? 

Mr. Chubb. Percy Chubb, my brother, who is a great deal older 
than I am—17 years older; myself; George B. Ogden: W. A. Hamil¬ 
ton ; T. H. Allen; and my brother, Sidney Chubb. 

Mr. Edmonds. Is Mr. Sloan a member of your firm? 

Mr. Chubb. Mr. Samuel Sloan and Mr. Francis FT. Sloan are both 
directors of the Federal Insurance Co. 

Mr. Edmonds. Not of your firm? 

Mr. Chubb. No; not in any way. 



MARINE INSURANCE. 


321 


Mr. Edmonds. He is a director in the Queen, also? 

Mr. Chubb. I do not know about that. 

^ Mr. Edmonds. Which is virtually owned by the Royal Insurance 
Co., of Liverpool? 

Mr. Chubb. Yes. 

Mr. Edmonds. Mr. Redmon Crist is a director also? , 

Mr. C HUBB. Yes. 

Mr. Emonds. He is a United States trustee for the Atlas insurance 
Co. (Ltd.). 

Mr. Chubb. I do not know. 

Mr. Edmonds. You were chairman of the Hull Insurance Associa¬ 
tion ? 

Mr. ( hubb. No, sir. 

Mr. Edmonds. You were not chairman? 

Mr. Chubb. No, sir. 

Mr. Edmonds. You were not in it? 

Mr. Chubb. Yes, sir. 

Mr. Edmonds. Mr. Fowler was chairman? 

Mr. Chubb. He was chairman part of the time. I think he is not 
now; in fact. I know he is not now. 

Mr. E dmonds. And there was virtually a controlling interest of this 
Underwriters’ Association by three or four of the largest writers of 
international insurance? 

Mr. C hubb. T should not think so for a minute; absolutely not. 

Mr. Edmonds. Did you resign from that association? 

Mr. Chubb. No. 

Mr. Edmonds. You are still a member? 

Mr. Chubb. Still a member. 

Mr. Edmonds. Did Mr. Appleton and Mr. Fowler resign, or are 
they still members? 

Mr. Chubb. I think Mr. Fowler resigned from marine insurance, 
so I think he has resigned. 

Mr. E dmonds. Mr. Simpson is still in the hull association? 

Mr. Chubb. As far as I know he is. 

Mr. Chin dblom. Do von know whether Mr. Rush is a member? 

Mr. Chubb. Somebody told me yesterday he was not. It was a 
surprise to me. I thought he was. 

Mr. E dmonds. Mr. Rush resigned, but, as I understand it, he 
said his resignation had not been accepted, although he said it was 
positively on record. 

Mr. Chubb. I did not even know that, 

Mr. Chindblom. Are there any resignations on file for action at 
such time as it mav appear proper to take action? 

Mr. Chubb. Not that I know of. 

Mr. C hindbi/OM. I confess I could not just understand the situa¬ 
tion about that resignation. 

Mr. Chubb. I have never known a resignation from any of these 
associations to take but one of two courses: Either it is accepted or 
referred to some special people who want to go and talk it over and 
see if there is anv trouble and what it is, with a view to reconciling 
any differences. 

Mr. Chindblom. I should think so. But I have the impression it 
is a hard job to get out of the association if you desire to do it. 


160770—20 


21 



322 


MARINE INSURANCE. 


Mr. Chubb. I do not think it is hard. 

Mr. Edmonds. I will tell you the impression I got of it is this, that 
as long as by an understanding with London, the rates on hull in¬ 
surance were fixed and virtually could not be taken care of in this 
country, some of these gentlemen were active in the American Hull 
Association; but recently, with the enlargement of the insurance 
facilities in this country, the hull association seems to have gotten 
into the hands of men who are more distinctly American under¬ 
writers; and it looks very much to me as if you folks who were 
doing an international business retired from any active participa¬ 
tion and then, owing to that retirement, the hull association has 
become innocuous. 

Mr. Chubb. I do not think that is quite a correct diagnosis. I 
know my own retirement from active participation in the hull asso¬ 
ciation dated from my coming down to Washington with the Ship¬ 
ping Board. I resigned from the hull association and made it a 
point not to attend those meetings. I did not think it a proper thing 
for me to do. 

Mr. Edmonds. I think that is very—fair* but is that true of the 
balance of the association? From Mr. McGee’s testimony, why, the 
hull association has virtually become a dead one. 

Mr. Chubb. Yes. There is no question about that, Mr. Edmonds. 

Mr. Edmonds. Why? 

Mr. Chubb. Because the hull association was based on giving 
what we called advisory rates. And why we call them advisory 
rates, you were under no obligation to follow them. At the same 
time, if they were not followed, the hull association could not go 
on. Now, people did not follow them. 

Mr. Edmonds. Before you came down to Washington, was not the 
bull association quite a factor in hull rates? 

Mr. Chubb. Yes, it was. 

Mr. Edmonds. And were not the hull rates greater in this country 
when you international insurance men were in the association? 

Mr. Ciiubb. You know, I do not know—you keep calling me an 
international insurance man. I do not know whether it is a compli¬ 
ment or whether there is some suspicion of a slur in it. 

Mr. Edmonds. No there is not any suspicion of a slur in it at all. 

Mr. Chubb. But I have a broader interest in the American marine 
insurance than any man appearing before you—more personal in¬ 
terest—and I would like to have my record clear on it. 

Mr. Edmonds. I am not making any slur, and I do not w T ant anyone 
to consider it a slur. 

Mr. Chubb. I thank you. 

Mr. Edmonds. I am simply calling you—your position in the busi¬ 
ness is one of an international status, in my opinion. 

Mr. Chubb. I think that is true of almost every marine underwriter. 

Mr. Edmonds. That is true of almost every marine underwriter to 
some extent, but some men do less business with foreign companies 
and other men do more. 

Mr. Chubb. Unquestionably. 

Mr. Edmonds. It is not a slur for a man to do business where he can 
do business and where he can turn an honest dollar. 


MARINE INSURANCE. 


323 


Mr. Chubb. I am very much obliged to you for your explanation. 
I ou can call me an international insurance man if you like under 
that explanation. 

Mr. Edmonds. I am trying to differentiate between the man the 
large bulk of whose business, or an equal division of whose business, 
is done in two countries. I am trying to differentiate between them 
and the man who places a very small amount of business outside of this 
country. I would consider you an internationalist. 

Mr. Chubb. I would like to submit to you that the interest of any 
American underwriter, whether he underwrites virtually for Amer¬ 
ican and foreign companies, is practically identical with that of a man 
writing purely for American companies. I would further submit to 
you that in my opinion—and I think it will be borne out if you ask 
these questions confidentially of any of the men who have been a long 
while in the business; I do not know about new men—I have done as 
much as any one man to make the American market independent 
of any other market ? 

Mr. Edmonds. I have understood so. 

Mr. Chindblom. I would like you to go a little further. In the first 
part of your last statement you said, “ I would like to submit to you 
that the interest of any American underwriter, whether he under¬ 
writes virtually for American and foreign companies, is practically 
identical with that of a man writing purely for American com¬ 
panies.” Would you emphasize that statement and show why it is so? 
It does not seem so at first blush, does it ? 

Mr. Chubb. It does seem so to me, I must say. The first interest of 
the underwriter in either case is in the American market, in the busi¬ 
ness he has done here under the laws of the United States and in 
making money and conducting the business satisfactorily for the com¬ 
pany he represents. Now, I do not know wherein my interest, for 
instance, would be anj^ different from Mr. Rush’s or from Mr. Par¬ 
sons’s or from Mr. Hedge’s, all of whom do not represent a dollar of 
foreign interest. We are all interested in seeing the business done 
in this country, and not done outside of this country—all done in this 
country. I mean done in this market. And we are interested in see¬ 
ing proper practices prevail. 

Mr. Chindblom. But if you represent foreign companies, neces¬ 
sarily it is your business to look after their interests ; and, if you 
neglect their interests, they may not find fault, but that would hardly 
be the proper course for a business man to follow, would it ? 

Mr. Chubb. I do not know. It would depend on what their in¬ 
terests are. If you mean their interest in the American branch, I 
say “Yes”; but if you say their interest on the other side not to 
interfere with their business done over there, I say, “ Not by a long 
sight.” For instance, Mr. Evans testified yesterday about the way 
to settle this competition was to go over there and take some of their 
business. I do not know where Mr. Evans got the idea, but before I 
ever heard of it from Mr. Evans, I suggested to Mr. McComb that 
is the only way we could accomplish anything. And I would no 
more hesitate to do that, because it would interfere with the com¬ 
panies we represent on the other side, than I would hesitate to do 
it if I did not represent those companies on the other side. 


324 


MARINE INSURANCE. . 


Mr. Chindblom. Do not understand me for a moment to suggest, 
you have not a right to represent all the foreign companies you like. 
I think as an American you have the right to represent all the 
foreign companies you like. 

Mr. Chubb. I am sure of it. 

Mr. Chindblom. There is not anything in our laws that prevents 
it, and I do not think there is anything American that forbids it. 
But what I am getting at is, as a matter of fact, the representation 
of an interest in foreign business does it not rather impose on a man 
an obligation to look after that foreign business? 

Mr. Chubb. It does as far as you have a company agency over 
here; but as far as any competition with the head office, not a bit. 

I do not read it so. And my position on that question can be under¬ 
stood by any head office of any company we represent, and if they 
do not like it there are two alternatives- 

Mr. Chindblom. That is all right; I am content. 

Mr. Chubb. I want to explain that fully. 

Mr. Edmonds. I do not want Mr. Chubb to feel for one minute 
there is anything personal. 

Mr. Chubb. I do not, Mr. Edmonds. 

Mr. Edmonds. Or any reflection on your personal Americanism, 
but your relations naturally are international. 

Mr. Chubb. I am trying to make clear, because I think the com¬ 
mittee has a little wrong bias on it, that the interest of the Ameri¬ 
can, such as myself, representing a foreign company, as regards the 
market in this country, is exactly the same, except I should think, 
if I stood to bring about a monopoly of the American field to only 
companies that were incorporated over here, although my personal 
interest would be to do that, more than any other thing, I would 
feel I w r as personally negligent to my trust. 

Mr. Edmonds. That is just exactly what I meant. 

Mr. Chubb. And I am perfectly willing to admit that wffien it 
comes to a question of monopolizing. But wdien it comes to a ques¬ 
tion of export business or anything of that kind, I am just as inde¬ 
pendent as if I did not represent any company except the Federal. 

Mr. Edmonds. You heard my explanation of what I considered 
exported insurance—insurance on which no record came over here 
and done in London? 

Mr. Chubb. Yes. 

Mr. Edmonds. Who does that principally, the broker? 

Mr. Chubb. Almost entirely. 

Mr. Edmonds. It is done, of course, with the obvious intention of 
evading tax here and reducing the cost of insurance by that evasion, 
is it not ? 

Mr. Chubb. I think that is a factor in it. I think the thing is to 
obtain the benefit of the cheaper market. 

Mr. Edmonds. Have you any way of keeping any track or record 
on that exported insurance? 

Mr. Chubb. No, sir; not at all, except I did figure (that is just 
one man’s opinion) the 20 per cent of the whole business struck 
me as excessive at the present time. 

Mr. Edmonds. We endeavored for pretty near a week to try to 
figure it out in some way, but it seemed to be almost impossible 



MARINE INSURANCE. 


325 


to do it. It was the opinion of certain insurance men to whom we 
talked that was about the amount. It might be high or low, be¬ 
cause it is only an estimate. 

Mr. Chubb. I think Mr. Mather could have given you a very 
good opinion on it; much better than I can. 

Mr. Edmonds. I think probably he could. 

Going back to your connection with the Shipping Board, you were 
chairman of a committee and Mr. Davey and Mr. Hedge were 
members of the committee? 

Mr. Chubb. Yes. 

Mr. Edmonds. And that was the original board. At that time the 
Shipping Board was not doing their own insurance? 

Mr. Chubb. 1 do not think they had really got to the point where 
the insurance question had come up prior to that, Mr. Edmonds. 

Mr. Edmonds. They must have had something to insure and I 
think they insured it as far as they did. 

Mr. Chubb. I do not thing they did. As far as I know they did 
not place any insurance prior to that. 

Mr. Edmonds. And it was on your recommendation they started 
this board of their own? 

Mr. Chubb. Yes; it was. 

Mr. Edmonds. That worked out successfully, very successfully 
from the figures they have given to us. 

Mr. Chubb. Yes; I think it was well run. 

Mr. Edmonds. At the time that commission was formed Mr. 
Davey resigned, did he not? 

Mr. Chubb. Yes; he resigned. 

Mr. Edmonds. And he formed what was known as the American 
Protection & Indemnity Co.? 

Mr. Chubb. No : that had been formed a long time before. 

Mr. Edmonds. It had been formed a long time before? 

Mr. Chubb. Yes. 

Mr. Edmonds. He was active, however, in forming it, was he 
not? 

Mr. Chubb. I do not think so. His firm were, but Mr. Davey 
himself, my impression is, had very little to do with it. It natu¬ 
rally would come very little in his line. 

Mr. Edmonds. What was the purpose of that company? 

Mr. Chubb. It was to do w T hat is known as club insurance. There 
are a number of English clubs and I imagine German clubs, and I 
know Norwegian clubs. Those clubs are shipowners that get to¬ 
gether to protect themselves by a mutual plan against certain risks 
not covered by marine insurance policies, such as claims for dam¬ 
aged cargo by bad handling—claims that are not recoverable in some 
cases under the insurance policies, owing to the work of the aver¬ 
age clause in the policy, although that is not always the custom. 

Mr. Edmonds. Was this American Protection & Indemnity Co. 
composed of a number of the insurance men in the country? 

Mr. Chubb. No; I do not think so. It was composed of steam¬ 
ship men. 

Md. Edmonds. The owners of the steamships themselves? 

Mr. Chubb. Yes; the ow T ner of the steamships themselves. I am 
not terribly familiar with that aspect, so I say this with deference 


326 


MARINE INSURANCE. 


that I think you could get the information perhaps more accu¬ 
rately from somebody else. 

Mr. Edmonds. Johnson & Higgins were big people in the forma¬ 
tion of this company? 

Mr. Chubb. They were managers. 

Mr. Edmonds. The Shipping Board insured their ships in that on 
the outside, did they not? 

Mr. Chubb. They entered their ships in that. 

Mr. Edmonds. Was that deduction made from the proceeds of the 
Shipping Board—the cost of this insurance? 

Mr. Chubb. I imagine it was the Emergency Fleet Corporation, 
Mr. Edmonds. I never could quite get the relation between the two- 
straightened out. I imagine the Emergency Fleet Corporation did 
that, because I do not think the Shipping Board could insure. 

Mr. Edmonds. As near as I can find out, it has not been straight¬ 
ened out yet, but I hope it will be some day. 

Mr. Chubb. As I recollect it, they made a contract and entered all 
these boats into this association, and it was under the management 
of a committee of the board of directors of which, I think, no insur¬ 
ance man was a member. I am not sure, but that is my impression. 

Mr. Edmonds. Was it necessary for them to do that? 

Mr. Chubb. You mean- 

Mr. Edmonds. For the Shipping Board to do that? 

Mr. Chubb. The Shipping Board had to take care of that in one 
of two ways: They either had to organize a very extensive depart¬ 
ment to take care of this insurance, with agents, all over, or else 
they had to make an arrangement with some concern in this coun¬ 
try. And it came up to me—negotiations for this were started be¬ 
fore I joined the Shipping Board and it came up to me to approve— 
before they were completed, I was asked if I approved and I heartily 
did approve, because I thought it saved money for the Shipping 
Board and it possessed an institution which was the only American 
institution of its kind and it would be very necessary for the Ship¬ 
ping Board. 

Mr. Edmonds. Was it a mutual arrangement? 

Mr. Chubb. A mutual arrangement; yes, sir. 

Mr. Edmonds. It is rather remarkable in the testimony given to 
us by the Shipping Board, they never mentioned this American 
Protection & Indemnit}^ Society; but, in going over the records, I 
ran into it, and so I was wondering what it had to do and where it 
came in, because we have been informed that the insurance of the 
Shipping Board was done by it and a profit had been made. 

Mr. Chubb. Yes. 

Mr. Edmonds. And that it had been successful, and I could not 
understand where this came in in any of the reports or anything they 
said to us. 

Mr. Chubb. I do not know that this is strictly insurance. I sup¬ 
pose it is insurance, because they could not get a policy anywhere 
else for that kind of thing, but it is not customary in the usual sense 
of the word. As a rule, the steamship people enter their vessels in 
one of their societies, and the premium is assessed not on the value 
of the vessel but so much a ton, and it is subject to assessments. 

Mr. Chindblom. That is for these extraordinary hazards? 



MARINE INSURANCE. 


327 


Mr. Chubb. They are mostly small, but extraordinary in the case 
of being outside of the usual hazards, being hazards not due to the 
acts of God. 

Mr. Chindblom. Yes; and not usually covered by insurance? 

Mr. Chubb. Very rarely. 

Mr. Edmonds. There is no way of estimating what such losses 
would be, and a man in the insurance business, even with the best 
judgment, would not be able to tell. 

Mr. Chubb. It would be very hard to do so and I do not think it 
has ever been thought very much worth while. 

Mr. Edmonds. In connection with your Government business, Mr. 
Chubb, you were asked to take care, by Mr. Hoover, of the insurance 
for the sugar committee and the different committees ? 

Mr. Chubb. No, sir; I was not. 

Mr. Edmonds. You were not? 

Mr. Chubb. No; Mr. Rolph. 

Mr. E dmonds. I mean of Mr. Hoover’s department ? 

Mr. Chubb. I was going to explain a little bit. Mr. Hoover con¬ 
sulted me on one point, and I had one interview with Mr. Hoover in 
New York, and I w T rote him one letter in which I explained to him 
the way the premiums could be assessed. But as to the placing of 
the business or a division among the companies, I was never consulted 
and had no knowledge until it was an accomplished fact. I was only 
one of a number of people Mr. Hoover consulted, and, incidentally, 
my plan was not carried out. 

Mr. Edmonds. Does that cover the sugar and all the different 
foodstuffs? 

Mr. Chubb. Yes, sir. 

Mr. Edmonds. Did the food-control committee insure everything 
in the-market? 

Mr. Chubb. Oh, I do not know when they began to do it, but they 
did not begin to insure, I do not think, until the war was over. 

Mr. Edmonds. They did not begin to insure until the war was 
over ? 

Mr. Chubb. No; I do not think they insured anything during the 
w T ar. 

Mr. Edmonds. During the war they insured through the War Risk 
Bureau. I presume? 

Mr. Chubb. No ; they did not insure through the War Risk Bureau. 
I do not know of any risk of the food control insured in the War Risk 
Bureau. 

Mr. Edmonds. Where did they insure ? 

Mr. Chubb. I do not think they insured. 

Mr. Edmonds. During the war they were shipping sugar and other- 
food products across the water. They must have insured. 

Mr. Chubb. I do not think there was any insurance on those. Mr. 
Edmonds. I do not know. I had nothing to do with the Food 
Administration. 

Mr. Edmonds. Their insurance has only been on the market since 
the war? 

Mr. Chubb. That is my impression. 

Mr. Edmonds. And, of course, since the war the War Risk Bureau 
has gone out of that business; during the war I presume they insured 
with the War Risk. 


328 


MARINE INSURANCE. 


Mr. Chubb. I think 1 might have known of it, and I do not think 
they did, although the records of the War Risk Bureau would show it 
very easily. 

Mr. Edmonds. You were a member of the Lloyd's committee in this 
country, were you not ? 

Mr. Chubb. Yes. 

Mr. Edmonds. Are you still a member? 

Mr. Chubb. No. 

Mr. Edmonds. How long have you been out? 

Mr. Chubb. I resigned at the time that the Shipping Board asked 
me to act on the committee that was to report on classification socie¬ 
ties. I was asked to join the American bureau at that time. In fact, 
one of the insurance commissioners urged me to. But I said, if I was 
going to have that job I thought I should not be on either side, and I 
resigned. I had not been active; I had not attended a meeting for 
two years before nry resignation. 

Mr. Edmonds. That committee is still in existence? 

Mr. Chubb. It has made its report and been discharged. 

Mr. Edmonds. The Lloyd’s committee? 

Mr. Chubb. I thought you spoke of the committee on classifica¬ 
tion. 

Mr. Edmonds. Oh, no; I know that. 

Mr. Chubb. Oh, yes; the Lloyd’s committee is still in existence. 

Mr. Edmonds. What is that committee called, the American Com¬ 
mittee of Lloyd’s? 

Mr. Chubb. I do not remember the exact title, but that is the sense 
of it. 

Mr. Edmonds. You were on this before the war, were you not? 

Mr. Chubb. I was on it at the time it was formed. 

Mr. Edmonds. That has been some years ago ? 

Mr. Chubb. Not prior to 1913, and I think about 1915, Mr. Ed¬ 
monds ; but I really do not remember. 

Mr. Edmonds. The plans of American vessels that were registered 
in Lloyd’s Bureau were kept in this country? 

Mr. Chubb. I could not answer that definitely, Mr. Edmonds. I do 
not really know. 

Mr. Edmonds. Your committee had charge of the inspectors, the 
Lloyds inspectors ? 

Mr. Chubb. If we did, we never exercised it at an}* meeting I was 
present at, but I was present at very few meetings, Mr. Edmonds. 
1 do not think I attended—I think I attended two lunches and one 
meeting, as I remember it, during the whole time of my connection 
with it. 

Mr. Ciiindblom. What were the functions of the committee? 

Mr. Chubb. Theoretically they were to have entire supervision and 
charge of the American vessels of the Lloyd's registry. As a matter 
of fact, Lloyd’s registry was very well organized, and, like any board 
of directors of a *well-organized thing, I do not think they interfered 
very much, though they got pretty full reports; that is,’ if they lis¬ 
tened to them, which I think a good many members did. 

Mr. Chindblom. Did you have control over the American officers 
and American office force of the Lloyd’s in this country? 

Mr. Chubb. I could not answer that. I really do not know. 


MARINE INSURANCE. 329 

Mr. Chindblom. Was it a managing committee or an advisory 
committee ? 

Mr. Chubb. Its function was an advisory committee. Whether it 
was theoretically a managing committee or not I could not say, but 
as far as I attended the meetings it acted as an advisory committee 
altogether. 

Mr. Edmonds. From what we could find out and the reason we are 
interested in this bureau of registry, in the first place there are several 
European countries which have bureaus that are recognized by the 
English Board of Trade, or Lloyd’s, or whatever it may be—the 
proper authority in England. We are the second largest maritime 
nation in the world to-day, and our American Bureau of Registry is 
not recognized in England. 

Mr. Chubb. That is their own fault. 

Mr. Edmonds. That may be our own fault, but it won’t be very 
much longer when we get through with this legislation. 

Mr. Chubb. No; I think not. 

Mr. Edmonds. Now, we are very much interested in seeing this 
American bureau become the classification society for our ships, and 
we want to build it up, and you insurance men will have as much to 
do with that as anybody. Rians of our ships have been found in the 
Lloyd’s English office, even down to some ships that we preferred not 
to have the plans found there, and that is a natural result of regis¬ 
tering at Lloyd’s. It is not anything wrong. If they are registering 
a ship, they are naturally entitled to it. And there are many other 
reasons why we should have an American Bureau of Registry, and, 
as I say, you folks can build it up, and this committee, having charge 
of that, are asking you about it when you come before us. 

Mr. Chubb. Yes. 

Mr. Edmonds. And we want you to assist us in building this bureau 
up in any way you can, and we see that here is one place where we can 
all sink our other relations and stand back of it, and we hope you will 
do so. 

Mr. Chubb. I might say that our committee has made a report 
to the Shipping Board, which report has been transmitted to Con¬ 
gress. I do not know whether it has come before you gentlemen or 
not. 

Mr. Edmonds. T am going to send for it. I have not seen it. 

M. Chubb. I have a letter from the Shipping Board of formal 
acknowledgment and saying it had been transmitted to Congress. 
It is a report on which we spent a great deal of time and were pretty 
painstaking. 

Mr. Edmonds. I am told you are going to be an enthusiastic sup¬ 
porter of the American Bureau. 

Mr. Chubb. I will support the American Bureau, if they will 
make it efficient, as far as anybody. If it is not efficient, and in the 
past it was not efficient—if it is not efficient, it is a handicap. But 
I believe it can be made as efficient as any in the world. 

Mr. Edmonds. Of course, we have to build it up. 

Mr. Chubb. And I think it is up to use to do it. I agree with you. 

Mr. Chindblom. Do you think there should be legislation on the 
subject? 


330 


MARINE INSURANCE. 


Mr. Chubb. Well, I think there should be load water-line legis¬ 
lation, and I think that load water-line legislation should be so 
drawn as not only to have regard to the enforcement of our law, 
but also reciprocal arrangements with other countries. There is 
a bill now before you, which I had some part in drawing, because 
the Shipping Board asked me to go into it after the bill was first 
introduced by the Department of Commerce, and in the bill now 
before you, I had a great deal to do with it. I consulted with the 
Department of Commerce on behalf of the Shipping Board, and 
I believe that contains all the features necessary for reciprocal action. 

Mr. Edmonds. That would help to build up the American bureau, 
would it? 

Mr. Chubb. Very much. 

Mr. Edmonds. I was just about to ask in that connection, while 
we are talking about the load line: Supposing we were to put 
through a bill limiting that to the use of a load line on registered 
vessels, that would be of some assistance, would it? 

Mr. Chubb. That would be of some assistance, but the more you 
can get the better. But I would not let any part go just for the 
gake of the principle; 1 would take part of it. 

Mr. Edmonds. We are meeting with very strong opposition on the 
part of the coastwise people, and I have no doubt they would not 
like to see a load line established. 

Mr. Chubb. Mr. Edmonds, don’t you think that is just because 
of the theory in the coastwise people’s minds? They say, “If you 
are going to put a load line on our ships, it will be a terrible handi¬ 
cap.' 1 I have talked to a lot of them. They say, “ Why, we load our 
boats to within 5 or 6 inches of the water, and then we put a deck 
load on over the free board besides that.” And I think any proper 
rules would not interfere with the deck load, because the deck load 
is a part of the freeboard. And I think this bill that is before you— 
I am talking about something, perhaps, that does not fall here, but 
it is a subject in which I am interested. 

Mr. Edmonds. It belongs to the committee generally, and this 
testimony will prevent our asking you the same question again, 
perhaps, because we will take this over to the other committee. 

Mr. Chubb. This bill that I drew up provides, as I recollect it, 
“ in the discretion of the Secretary of Commerce.” If I happened 
to be in that splendid position of Secretary of Commerce, the first 
thing I would do, I would say “For the present I will adopt the 
rules as to ocean traffic that England, Norway, and the other coun¬ 
tries have adopted. In the coastwise traffic I will make up my own 
rules.” And they would be based on the ideas of men who under¬ 
stand that problem, partly. And then I would go into an inter¬ 
national conference. 

But, in the meanwhile, I think it is a disgrace that we are the 
only country without a load water line law. I was speaking to Mr. 
Thatcher last night about this load water line, and I said I thought 
it was strange that nobody before had spoken about the effect on 
insurance rates of the load water line. It has some influence on the 
insurance rate. But, after all, we would base our rates on our ex¬ 
perience ; and, so far as it is abused, we try to take care of it in the 
rate. But the reason these underwriters—I think, most of us—are 
interested in it, we see the abuse of overloading, and we see what it 


MARINE INSURANCE. 


331 


means in the loss of vessels and men; and, quite apart from our 
selfish interests, any man Avho has seen that thinks something ought 
to be done to protect the unselfish vessel owner. The unselfish own¬ 
ers do not need a loat water line; but when you put them in com¬ 
petition with a man who does, he can load a foot deeper than they 
can; and it is all wrong. 

Mr. Edmonds. Naturally, it leads to a condition where one man is 
being treated entirely different from another man? 

Mr. Chubb. Absolutely. 

Mr. Edmonds. It would tend to stabilize your insurance rates with 
a load water line, and probably tend to stabilize your foreign insur¬ 
ance rates—that is, to bring the two rates nearer together, I should 
think. 

Mr. Chubb. It would. Before you leave me on the Government, 
there is one question I would like to bring up as regards the Gov¬ 
ernment matter, and that is to this effect: I read in Mr. Ogden’s testi¬ 
mony the way we made rates for the Shipping Board was on a basis 
of taking the companies’ rates less 25 per cent. I had charge of that 
down here, and that is not entirely true. You could not take com¬ 
pany rates on a great many of those boats, because nobody knew what 
the company rates were. These rates represent my estimate of the 
distribution cost of the business; that is, I tried to put a rate on that 
would distribute the losses so that the losses and premiums came out 
as even as possible at the end of the period. That is simply the 
judgment of the experienced men trying to do that. 

Mr. Edmonds. Would that have been the same judgment you used 
in your own business for setting a rate? 

Mr. Chubb. Yes; it would have been our own judgment, ex¬ 
cept— 

Mr. Edmonds. Excepting it would have been the current rates? 

Mr. Chubb. No ; we do not know what the current rate is. 

Mr. Edmonds. I say what you in your own business would judge 
to be the current rate? 

Mr. Chubb. Except I would have allowed something off, because 
the Shipping Board had no taxes and things like that. And Mr. 
Ogden’s testimony referred to 25 per cent off the rates. That is, in 
trades where we had a criterion, my recollection—I can not verify 
this—is that that 25 per cent was 25 per cent off the gross rate, but 
really only 15 per cent off the rate the shipowner had. 

Mr. Chindblom. Before we leave the subject of the American Bu¬ 
reau of Shipping, do you think the bureau should have a legal 
status—should be recognized by law ? 

Mr. Chubb. This report goes very fully into that. It has been 
signed unanimously by every member of the committee, and it goes 
into that point. 

Mr. Chindblom. All right. 

Mr. Chubb. I think it would perhaps save you some time if I did 
not try to go into that now. 

Mr. Edmonds. The question was raised by some bankers in con¬ 
nection with the export of gold in January, 1917, to South America. 

Mr. Chubb. I saw that reference in the testimony, but I have not 
a very clear recollection of it. 

Mr. Edmonds. It was said that, of course, one of the very strong 
agencies for the British Government to build up foreign trade was 



332 


MARINE INSURANCE. 


its facility of handling funds through its different branch banks in 
all the world, and heretofore our merchants have been forced to 
conduct pretty near all their financial end of their exports business 
through English banks. That we all know. Just before the war a 
number of the larger banks in the country, under the Federal Bank 
Act which allowed it, started to establish banks all over the world. 

Mr. Chubb. Yes; I knew that. 

Mr. Edmonds. In January, 1917, England prohibited English 
companies from writing insurance on the exportation of gold except 
to and from England. 

Mr. Chubb. I could not confirm or deny that, Mr. Edmonds. I 
do not remember. 

Mr. Edmonds. These banks, the statement is made, then went to 
our American underwriters in an endeavor to get this gold under¬ 
written, and it was offered to the Federal and refused. 

Mr. Chubb. I can not understand why. 

Mr. Edmonds. Under what circumstances it was refused I do 
not know. 

Mr. Chubb. I do not, either. 

Mr. Edmonds. Mr. Rush said the other day the rate was not high 
enough. 

Mr. Chubb. That might have been. 

Mr. Edmonds. But, of course, the rates being so elastic in the 
marine business, the men who did not want to take it might have 
made it too high especially for that purpose. 

Mr. Chubb. Of course that was in time of war, you know, and 
war rates were high. 

Mr. Edmonds. This was before the war. 

Mr. Chubb. But if it went in an English bottom, of course it was 
subject to capture. I do not know whether it did or not. 

Mr. Edmonds. Of course a proposition of that kind was so vital 
to the extension of the American export business that it seems to me 
our companies would never have listened to what England wanted 
to do but would have extended, as far as possible, their lines to 
take care of our exports. I think you will agree with me there. 

Mr. Chubb. I think they would, too. Just as an illustration of 
that, Mr. Edmonds, you take when cotton was allowed to go to Ger¬ 
many. Personally, I am frank to say I had no sympathy with the 
German cause, and I did not want cotton to go there, but I repre¬ 
sent an American company and I thought it was incumbent on me 
to write lines in the Federal on that cotton, and I wrote lines in 
the Federal on that cotton, and every other company I knew of in 
America wrote lines on that American cotton. 

Mr. Edmonds. That goes to what I said, that you are international; 
you have business affiliations all over the world, and you could not 
help it. 

Mr. Chubb. Yes; but when I saw it in the report in your own 
testimony, that was when you referred to controlled companies. 

Mr. Edmonds. No; you were not put in the list of controlled com¬ 
panies; you were put in the list of allied companies. 

Mr. Chubb. Excuse me; in Mr. Hedge’s testimony, when “ control ” 
was used, he asked if that applied to the Federal, and Dr. Huebner 
said “yes.” 


MARINE INSURANCE. 


333 


Mr. Huebner. I made a distinction. 

Mr. Chubb. I do not think you made that impression on the ones 
who listened to you. 

Mr. Hu ebner. I made a distinction between one legally controlled 
and the company that is allied- 

Mr. Chubb. And virtually controlled. We are not virtually con¬ 
trolled. 

Mr. Chindblom. Will Prof. Huebner differentiate? 

Mr. Huebner. There is a sympathetic relationship, because the 
management of the American company also manages the domestic 
business of the foreign companies, and where a large amount of the 
reinsurance is placed in those companies. 

Mr. Chubb. There may be a sympathetic relationship, but that 
that sympathetic relationship in the hands of any patriotic American 
results to the detriment in any way of the Americans in this country 
I absolutely and flatly deny. 

Mr. Edmonds. Was the insurance of the Sugar Equalization Board 
placed in this country? 

Mr. Chubb. {Entirely, I believe. 

Mr. Edmonds. Was it retained in this country or reinsured in 
foreign countries? 

Mr. Chubb. I could not tell you. I can tell you as regards our line. 

Mr. Edmonds. Your line in the Federal was 30 per cent? 

Mr. Chubb. Thirty per cent. I can also tell you the theory on 
which I understood the four companies’ wishes were respected, al¬ 
though, as I said, I had no knowledge of the way the business was 
arranged for, or anything before the business was put before us and 
I was asked if I would take it, and I said 'I would take it. 

Mr. Chindblom. What did you understand was the theory? 

Mr. Chubb. My understanding of the theory was the companies 
they wished were companies that had been insuring their refineries 
before. For instance, under this agreement, the Federal Insurance 
Co. which—although it has the same name, is in no way affili¬ 
ated with the Federal Sugar Refinery Co.—had always done the 
Federal Sugar Refinery’s business, and they stipulated when 
a loss occurred under this policy they did not want to deal with 
anyone but the Federal Insurance Co., and under this policy 
if a loss occurs the loss will be settled for through me. For the 
Warner Sugar Refinery, the Atlantic Mutual would do it. That was 
the basis. 

Mr. Chindblom. Was vour percentage of insurance about the same 
as the percentage of sugar handled by the refinery company ? 

Mr. Chubb. I do not think so. 

Mr. Chindblom. The Federal Sugar Refinery Co. would hardly 
handle 30 per cent? 

Mr. Chubb. Oh, no; I should not think so; no, sir. 

Mr. Chindblom. Of the output? 

Mr. Chubb. I presume the American Sugar Refinery has very 
much the larger business and the Federal is the smallest of the three; 
I do not know. I think the Warner have the smallest. It would 
probably be the American, the Federal, the Warner, and the 
Arbuckle. 

Mr. Edmonds. It was the intention of the board to place that with 
American companies? 



334 


MARINE INSURANCE. 


Mr. Chubb. That is to be placed with American companies. 

Mr. Edmonds. But somehow or other 30 per cent escaped to the 
American-Foreign, which is owned by a very small percentage of 
American interests. 

Mr. Chubb. Absolutely. I can not conceive that the committee 
placing that did not know that, because there was no reason they 
should not know it. Everybody does know it. 

Mr. Edmonds. I presume, considering the circumstances, most of 
it was reinsured on the other side, anyhow. 

Mr. Chubb. I should not think so. 

Mr. Edmonds. It was a pretty heavy risk to carry? 

Mr. Chubb. I can only speak for our own share. I have no objec¬ 
tion to telling you on the record exactly what we did with our share. 
We got 30 per cent. Of that we insured- 

Mr. Chindblom. Bight there, you covered more than the Federal 
Sugar Co.’s sugar? 

Mr. Chubb. Oh, we covered 30 per cent of every blessed thing. 

Mr. Chindblom. Thirty per cent of the whole thing? 

Mr. Chubb. Thirty per cent of the whole thing, and we reinsured 
under instructions, I believe, from the committee—although I was 
not in New York, but I am pretty sure of that—we reinsured, on 
instructions from them, in the Great American Insurance Co., tnree- 
twelfths; in the Aetna Insurance Co., one-twelfth; the Northern Un¬ 
derwriters, one-twenty-fourth. That is what we reinsured. Then 
we took the balance of that. I think that would be somewhere 
around 11 per cent of the whole value that we reinsured in that way. 
The balance of it we divided up among our companies in the way we 
had always divided up the sugar business. 

Mr. Edmonds. None of that was reinsured in the other four com¬ 
panies that you manage for? 

Mr. Chubb. As I say. the 11 per cent was done there, and the bal¬ 
ance, the other 19 per cent, was divided up in the same way w T e had 
always done with the American Befinery Co. business. That would 
be, as I recollect, offhand, 65 per cent of the remaining 19 per cent 
would be reinsured with the British companies we represented. 
That is an approximate figure. 

Mr. Thacher. British companies admitted to the United States? 

Mr. Chubb. I think the committee understands. 

Mr. Edmonds. Is any member of your firm a member of the Brit¬ 
ish Association of Foreign Managers? 

Mr. Chubb. No; absolutely not. 

Mr. Edmonds. That is the name of that association, is it not? 

Mr. Chubb. I do not know. Mr. Edmonds. I think it is the 
American and English Association. 

Mr. Edmonds. It is a social organization, I presume. Most of 
these business organizations are. 

Mr. Chubb. Nobody is a member of it anyhow, whatever it is. 

Mr. Edmonds. Of Managers of British Insurance Companies in 
Foreign Countries? 

Mr. Chubb. Nojbody- 

Mr. Edmonds. It is quite a large association? 

Mr. Chubb. No member of our firm is a member of it, whatever 
it is. 




MARINE INSURANCE. 


335 


Mr. Edmonds. It is quite a large association, and I thought some¬ 
body could tell us. 

Mr. Ciiubb. I would not be sure there was such a thing. 

Mr. Edmonds. There is such a thing. I thought on your end of 
the line you could tell us who were the members. 

Mr. Chubb. I do not know. 

Mr. Edmonds. In making up these pools, like the burlap pool and 
the cotton pool, did the division fairly well follow the lines of in¬ 
surance that were held by these different concerns before? 

Mr. Chubb. \ es; I should think that that was the controlling 
thing, although I would not recognize them under the name of 
“ pool.” We consider them reinsurance arrangements. 

Mr. Edmonds. Of course, you do not call them “pools”; but yet, 
at the same time, I suppose it is the best word we can use without 
going into an explanation every time we mention it. 

Mr. Chubb. Reinsurance arrangement has a meaning in our busi¬ 
ness. 

Mr. Edmonds. It is a reinsurance arrangement; yes. Did you 
know Mr. Roberts? 

Mr. Chubb. Yes. 

Mr. Edmonds. Chairman of the'Indemnity Mutual? 

Mr. Chubb. I met him within six months. I never knew him be¬ 
fore. He was an underwriter, I think. I do not think he was chair¬ 
man; at least, when I knew him he was an underwriter for the In¬ 
demnity Mutual. 

Mr. Edmonds. Possibly that may be his position. He seems to 
feel very friendly toward the English market. What is the In¬ 
demnity Mutual? 

Mr. Chubb. I think the Mutual is merely part of the title as I 
understand it, or else it ceased to be mutual. It is a prominent, Avell- 
known English insurance company. 

Mr. Chindblom. Maybe the stockholders share mutually? 

Mr. Chubb. I do not know what it means, but I have never seen 
anything that indicated any mutuality in their actions. 

Mr. Edmonds. Of course, during the incumbency of your office 
here with the Shipping Board, } T ou virtually suspended operations, 
I presume, with the different interests you were connected with? 

Mr. Chubb. I have very little to do with them. I was down here 
practically the whole time. 

Mr. Edmonds. One thing that struck me peculiar was that looking 
over these pool arrangements, or reinsurance arrangements, the four 
concerns that seemed to have larger international arrangements than 
any other concerns in the country seemed to get a majority interest 
in all of these pools. Was there any reason for that? 

Mr. Chubb. The only reason for that would be that they originally 
had more of that business at the time the reinsurance arrangements 
were formed on their books. 

Mr. Edmonds. I suppose in your case, in the burlap pool, consid¬ 
eration was given to the fact that you were not only managers for 
the Federal Insurance, but you were also managers for these foreign 
companies? 

Mr. Chubb. Oh, yes; that was considered. 

Mr. Edmonds. And that would be considered in making up the 
insurance you underwrote? 


336 


MARINE INSURANCE. 


Mr. Chubb. Tes; that would be considered. 

Mr. Edmonds. All of these associations, I think, as testified, make 
rates; that is, a great majority are made for that purpose—not make 
rates, but recommend rates. 

Mr. Chubb. No: I do not think that is true. For instance, you 
are not bound. 

Mr. Edmonds. You are not bound. I mean the recommendation. 

Mr. Chubb. No; it is a rate for reinsurance. For instance, take it 
on burlap: We have a great many accounts of quite different rates. 
The rate on which the burlap agreement took part, they included cer¬ 
tain risks, and we have it in a different way. Our policies are not 
identical with the reinsurance policies at all. But, of course, it does 
have the effect of making a basis. 

Mr. Edmonds. According to our records, I think a few of those 
associations, like the Atlantic Inland or the Lumber Agreement on 
the Great Lakes, the Joint Grain Certificate arrangement—they are 
all reinsurance arrangements, probably, and consulting associations, 
very probably, with the idea of exchanging experience and getting 
an idea as to what should be the rate. Really I do not see how von 
could make a basis unless you did that. 

Mr. Chubb. As a matter of fact, however, they do not in many 
cases. In the associations to which I belong—I do not belong to all 
of them—the rate recommendations is not a prominent part. 

You mentioned the Lumber Association and you mentioned the 
Joint Grain Certificate. On that I think the division of the business 
is the important thing. The rate making is effectual, too. 

Mr. Edmonds. And it would be natural in a business of that kind 
it was contemplated. 

Mr. Chubb. The Atlantic Association is the same thing. 

Mr. Chindblom. Take, for instance, the burlap arrangement or 
agreement: Have you any common underwriter who acts on behalf 
of all the members in recommending these rates? 

Mr. Ch i bb. Mv recollection is that at the time that was formed 
a scale or basis of rates was drawn up and that there has been very 
little change in those except to meet certain contingencies. 

Mr. Ciiindblom. How were they drawn up? Did you designate 
your various office underwriters to "prepare those rates for you or did 
you employ some one on behalf of the entire organization? 

Mr. Chubb. Oh, no; we did not employ anybody on behalf of the 
entire organization. It may have been done by a committee, in sort 
of a town-meeting affair; I do not really remember about that. I do 
not think I was present, although probably I was. 

Mr. Chindblom. Do you retain anybody whose business it is to look 
after the affairs of this burlap arrangement ? 

Mr. Chubb. There is a secretary. I could not tell you whether he 
gets compensation or not. I am under the impression he got a per 
cent and I think five or six hundred dollars; something like that. 1 
am not sure now. 

Mr. Chindblom. Is he an employee of some of the other companies 
in the agreement? 

Mr. Chubb. He is an underwriter for one of the smaller companies 
in the agreement. I think at the time he took the position first he 
was connected with the German companies. 


MARINE INSURANCE. 


337 


Mr. Chindblom. Do these other reinsurance arrangements, that 
have sometimes been called “ pools ” here, have secretaries or clerks or 
executives ? 

Mr. Chubb. The cotton arrangement have Albert Wilcox & Co., 
who act and receive compensation for their services. 

Mr. Chindblom. Do you know of any other arrangement which 
has a similar secretary or employee who does that work? 

Mr. Chubb. No; I do not think in any case the secretary actually 
does the work. I think, for instance, in the burlap, if a new thing 
comes up, the secretary goes around and gets a slip initialed by 
everybody agreeing to accept reinsurance on such a basis. He comes 
in and talks with me and says, “will you accept this at five-eighths 
or a half?” and I say “Five-eighths,” and the same way with Mr. 
Rush; and then he goes around to the other members. 

Mr. Chindblom. And then you initial it to show your approval ? 

Mr. Chubb. I initial to show my approval, because otherwise it 
would not attach as part of the reinsurance contract. 

Mr. Chindblom. What other arrangements are there, to your 
knowledge, aside from the burlap arrangement and the cotton— 
those are the only two you have spoken of? 

Mr. Chubb. Just those two of just that kind. Of course the At¬ 
lantic Inland; they have a rating commitee. 

Mr. Chindblom. There is no sugar arrangement? 

Mr. Chubb. No sugar arrangement. Of course, on this particular 
policy, these particular companies meet together with the repre¬ 
sentatives of the committee and discuss rates. 

Mr. Chindblom. What policy do you mean? 

Mr. Chubb. There is a policy taken out, I think, by the Sugar 
Control Committee. It is the one we have been discussing. On that 
I think all the underwriters concerned who want to reinsure- 

Mr. Chindblom. That is as long as the sugar business is controlled 
by the United States Equalization Board? 

Mr. Chubb. That is all. 

Mr. Chindblom. Is there any arrangement or understanding on 
coal ? 

Mr. Chubb. I do not do any coal business. I do not think there is. 
I do not know about that. 

Mr. Edmonds. How about coffee and hides? 

Mr. Chubb. No such arrangement. 

Mr. Edmonds. They are free? 

Mr. Chubb. Yes; there are two ends to it. I mean by that you 
have always to consider in all this, as you gentlemen fairly well 
know—you have to consider the question as to what the other end 
will do. 

Mr. Chindblom. There is no general arrangement for miscella¬ 
neous shipping? 

Mr. Chubb. None. 

Mr. Chindblom. I suppose that there could not be. 

Mr. Chubb. It never has been possible. It has been attempted a 
great many times. It would be necessary to get an agreement of the 
markets of the world, because you have to get at both ends of every 
transaction. 

Mr. Edmonds. Was there not a few years ago a friendly agreement 
in reference to hull insurance by English and American underwriters, 

160770—20-22 



338 


MARINE INSURANCE. 


by which a certain per cent of the insurance was left in this 
country ? 

Mr. Chubb. Never. 

For the time when you sad “ by which a certain percentage was 
to be placed in this country.” That is what brought by answer of 
u Never.” There have been a great many attempts to work together 
for the two markets, and I think for a short period they did, but it 
was darn short. 

Mr. Edmonds. I suppose Johnson & Higgins got quite a batch of 
business and took it from one side to the other and the first thing it 
all went to pieces? 

Mr. Chubb. I do not know they were the particular ones that did 
it, but that is a pretty good idea of the w T ay these things go. 

Mr. Chindblom. Somebody did. 

Mr. Chubb. There was a temptation and a failure to resist. 

Mr. Edmonds. I mentioned tlieir names because they have not been 
before us yet to tell us how patriotic they are. I might have to change 
that from Johnson & Higgins to somebody else later. I can see in 
this business that the broker is a pretty active factor. 

Mr. Chubb. A very large factor. 

Mr. Edmonds. And a very troublesome factor a great many times. 

Mr. Chindblom. Fie is quite a necessary institution though, is 
he not? 

Mr. Chubb. I hate to admit it, but maybe he is. He certainly does 
perform a function; you can not get away from that fact. 

Mr. Edmonds. Brokers have a place in all businesses, but they 
can only exist su cessfully in competitive businesses, and ordinarily 
a broker in a noncompetitive business does not exist. 

Mr. Chubb. Mr. Edmonds, is the fire insurance business competi¬ 
tive to-day? I suppose it is to a certain extent. 

Mr. Chindblom. It is competitive as to who is going to get it; it 
*s not competitive as to rates. 

Mr. Chubb. No; it is not competitive as to rates, but it is keenly 
competitive as to who is going to get it. 

Mr. Edmonds. There is keen competition in that line; yet at the 
same time, if an insurance company started out to do some business 
itself, it would have to spend just as much money. 

Mr. Chubb. I think they would. 

Mr. Edmonds. And I think these companies recognize that and 
are perfectly willing to let the agent go out and the best business 
getter gets more than the one who is not such a good business getter, 
and the man who gets more business gets more money and gets more 
consideration. 

Mr. Chindblom. What other consideration is there? 

Mr. Chubb. There are lots of other considerations. 

Mr. Edmonds. He gets a little more consideration with the com¬ 
pany. Sometimes a man will write more risks with a company by 
having a real persuasive manner, and perhaps the company would 
take it. 

Mr. Chubb. You have two men- 

Mr. Edmonds. Perhaps the company may take his risk and write 
it from the fact they spread it all over these risks, and the other 
risks are good. 

Mr. Chindblom. And of course it always eventually results in a 
commission; that is the idea. 



MARINE INSURANCE. 339 

Mr. Edmonds. Is there any territorial division between these vari¬ 
ous associations? 

Mr. Chubb. The Atlantic Inland Association, of course as its 
name implies, applies only to the Atlantic Coast and inland waters. 

Mr. Edmonds. To coast and inland business? 

Mr. Chubb. Yes, sir. 

Mr. Edmonds. Do you have to belong to that association to do 
business in that district? 

Mr. Chubb. No. 

Mr. Chindblom. Do you folks down here, handling this ocean 
business, get any considerable Great Lakes business? 

Mr. Chubb. Yes; we have, personally, a big lake business. 

Mr. Chindblom. Mr. Chubb, are there companies who limit their 
business largely, or as much as they can, to the Great Lakes busi¬ 
ness, say? 

Mr. Chubb. I do not know of any company at the present time 
that does that. There were companies formed out there just for 
that purpose, but it is really a foolish thing to do. It is foolish to 
limit yourself to anv one class of business any more than vou can 
help. 

Mr. Chindblom. As a matter of fact, the hazards are as great on 
the Great Lakes as on the ocean, are they not ? 

Mr. Chubb. They are entirely different, but they are quite great. 

Mr. Edmonds. Mr. Hedge covered pretty well the tax question, 
but let me ask you this: Has the Federal tax had any effect on the 
insurance rates that you know of ? 

Mr. Chubb. None that I know of. I can not trace it. 

Mr. Edmonds. Is the English rate the same rate ? 

Mr. Chubb. The English what? 

Mr. Edmonds. The Government tax. I am not talking about the 
State tax: I am talking about the general Government tax. 

Mr. Chubb. I do not understand, except on excess profits, that the 
English companies are subject to any tax. 

Mr. Thacher. I understand they pay an income or excess-profits 
tax on profits averaged for a three-year period. So you see they are 
taxed on profits. The British companies are taxed essentially on 
profits. The American companies are taxed both on gross premiums 
they receive and profits, and also upon profits under the excess- 
profits tax to the Federal Government. So a company in this coun¬ 
try may be losing money, but it pays the State tax on the gross pre¬ 
miums, notwithstanding; that is the point. 

Mr. Chindblom. And the English taxes are collected or fixed once 
in every three years? 

Mr. Thacher. It is on an average, as I understand it, of the 
three years’ business, and if there is a profit in those three years a 
certain tax is imposed upon them, and not otherwise. They pay no 
premium tax whatever, as I understand it. 

Mr. Edmonds. Mr. Chubb, do the brokers—you are pretty con¬ 
versant with brokers, because you must naturally be, under your 
management agreement, pretty closely in touch with them- 

Mr. Chubb. Yes. 

Mr. Edmonds. Do they have any understandings or agreements 
between each other? 

Mr. Chubb. Not generally; no. 


340 


MARINE INSURANCE. 


Mr. Edmonds. How is it as to foreign nations? Do they have 
understandings and agreements with foreign companies? 

Mr. Chubb. I do not think so; no. 1 know of none. 

Mr. Edmonds. Are they under obligations where they have an 
agent or agency in London—I do not mean their own business, but 
I mean the other party who is their agent also there and they arc 
his agent here? 

Mr. Chubb. Yes. 

Mr. Edmonds. Do you have an agreement by which the business 
is to be divided up between those brokers, so that he is forced to 
send so much to the British agent ? 

Mr. Chubb. I know of none and I doubt if any exist. 

Mr. Edmonds. And so much to his American agent ? 

Mr. Chubb. I know of none. 

Mr. Edmonds. We have had testified here—and you have been 
closely in touch with the Shipping Board ideas and understandings 
in connection with the merchant marine^-that the English are mak¬ 
ing a lower rate on American hulls to-day than they are on their 
own. Why is that, in your opinion ? 

Mr. Chubb. I do not know that the English are making a lower 
rate on their hulls than they are on ours. 

Mr, Edmonds. No; lower rates on our hulls than they are on 
theirs. 

Mr. Chubb. I do not know that. Of course, it is very hard to 
arrive at a comparison, because most of our boats have gone there. 
On our boats we take a special rate, due to the special construction 
of our boats or the special trade. I do not know whether—I simply 
do not say one way or the other—I do not know whether an 
American boat with a world-wide privilege which can be written 
now in London at 5 per cent—whether an English tramp steamer 
would be written higher or lower. I simply do not know that. 
I do know there has been a uniform advance of 10 per cent or, 
rather, two or three advances on British hulls, and there has been 
no corresponding uniform advance on the American hulls that were 
placed in Great Britain. I asked Mr. Roberts—you referred to it 
when he was over here—I said “ How do you get away with a thing 
like that?” I said “If we were to keep the rates down on the Eng¬ 
lish hulls after advancing the American hull rate three times, we 
would have Congress or the Shipping Board after us pretty quick, 
and I admire the way you do it. How do you do it?” He said “ We 
can get it in the one case and we can not get in the other.” 

Mr. Edmonds. Mr. Roberts was quite optimistic as to what was 
going to be achieved by the English insurance companies when he 
was over here. 

Mr. Chubb. He did not talk in that strain to me. He made me 
° rather flattering offer, but I did not accept it. 

Mr. Edmonds. I am going to ask you something in regard to legis¬ 
lation. Have you framed any ideas in your mind in regard to that? 

Mr. Chubb. Mr. Chairman, I have got one or two things that, 
if you do not want to ask me any particular questions, I would like 
to bring up along that line, but it is just a little preliminary, because 
I think I have thought as much about this subject as any under¬ 
writer, because I began to think about it a good deal when I was 
asked to prepare an address to the Foreign Trade Council in 1917, 


MARINE INSURANCE. 


341 


of which the committee has a copy. In fact, I have been thinking 
about it all my life. I drew the attention of the superintendent of 
insurance in New York, in the early part of 1900, to the fact that 
we were discriminated against in taxation by this exported insurance 
we all had met, and a bill was introduced, but it never got out of 
committee, dealing with that very point, so I have thought about it 
a good deal, and I have certain views. 

Mr. Edmonds. Suppose you go ahead and give your views. 

Mr. Chubb. I made some notes this morning about some things 
on which I wanted to explain to the committee my point of view. 
I heard a good deal of talk yesterday about why Americans take 
foreign companies, when, as a rule, the Englishman, the Norwegian, 
and the Frenchman prefers his own company. I think that our old 
State laws were very much to blame for that situation myself. That 
is not only so in marine insurance, but it is the same with fire in¬ 
surance. 

Mr. Thompson told you that the Royal Insurance Co. is able to sell 
its policy right alongside of the Continental, although I do not think 
the Continental would have any difficulty selling its policy in Eng¬ 
land alongside of the Royal. It is merely because of the restrictive 
State laws that we had that American companies were forced in the 
early days to go to the foreign companies. The home companies 
made good and paid their losses well, and the people are recognizing 
it. Mr. Thacher could state when New York State amended that 
law allowing fire companies to write marine insurance. 

Mr. Thacher. In 1910 or 1911. 

Mr. Chubb. Until 1910 New York, which is the center of marine in¬ 
surance, because the banking facilities are there, would not allow 
a fire company to do both fire and marine insurance, and the result 
was that our big fire companies could not get into the business there. 
I think it was stupid legislation. I do not see any gain by it what¬ 
soever, but it was so. There were a few T companies that were allowed 
to do both fire and marine because they had done it prior to 1878 or 
1879, when they changed their laws. They changed the law because 
there were not many American companies doing a marine business 
only, and the natural reservoir was the company that had big assets, 
big capital, so these big fire insurance companies would also take 
up marine. In England they had a great many companies, in Ger¬ 
many they had some, and in Norway they had some more that were 
simply doing a purely marine business. They could come in. 

The North America was in New York because it had got in be¬ 
fore that law, but it was not an important marine company. The Con¬ 
tinental was helpless. It could not do it if it wanted to. That was 
one reason that the foreign companies got a big hold, and the reason 
they held it is that they did their business well, managed it well, 
and paid their losses well. 

Mr. Edmonds. And in a free field like that had a chance to build 
up their organizations very strong? 

Mr. Chubb. And they had a chance to build up their organizations. 
In the second place, this very protective American system of super¬ 
vision made the assured feel safe in taking any company that was 
passed upon by New York and Massachusetts and maintained its 
deposits over here. At one time one of the English underwriters 


342 


MARINE INSURANCE. 


was over here and I was speaking to him about one of the German 
companies having cut rates on specie. They had a pool of all the 
German companies, and they were operating through one German 
company, and they were cutting rates on specie. I said, “ What do 
you do in London when they come up against you ? ” They said, 
“ We do not pay any attention to it. If a man wants to take a Ger- 
man company, and feels that it will take care of him, let him do it.” 
I said, “ Those companies will be taken over here because they have 
their deposits over here, and they are genuine entity.” Here is the 
insurance report that shows that it is good security, and it was, and 
the war proved it. That is all I have to say on that particular 
question. 

As to the hull business going to London, and why it went there, 
since I came downtown in 1895 or 1896, I have always been very 
interested in the hull business, because it makes an appeal to the 
underwriter to try to find a way to get ahead of it. Very little busi¬ 
ness was done in the United States. The business that was done here 
was done in this way: A man would come in and say, “ Will you take 
the Mallory Line at 4 per cent? ” He came in to you and said, “ Will 
you w r rite the Mallory Line on the same terms as London?” You 
would say, “ Well, what are the London terms? ” “ Well, we will let 
you know those next week. Will you take the line? ” But that has 
changed. There have been fluctuations, but the man here controlled 
the market, as far as the control rested anywhere, and in the last 10 
years we have done more in America than anywhere else w ith Ameri¬ 
can hulls. I think it ought to be all here, but I do not know just 
how that is going to be accomplished. 

Mr. Edmonds. Bight on that point of hulls, did Mr. Hurley con¬ 
sult with you before he recommended the Government insurance on 
the remaining interest of the Government in these ships that were 
sold? 

Mr. Chubb. Well, I do not know that he consulted me. He told 
me what he was going to do and he asked me to comment on it, but 
I do not think you would call it consulting, because he did not put it 
in that shape. He asked me to come to see him when I was in Wash¬ 
ington, and I called to see him, and he said, “Mr. Chubb, the Ameri¬ 
can companies could not take care of all these boats if they Were 
offered to them.” I said, “ I doubt that; I think they could. I 
have been informed that they can.” I said, “ That is a matter of 
opinion. We have got the qualifications, and there is enough capital 
here to do it, and I think that if they are offered a fair rate the 
underwriters could absorb the whole of it.” He said, “ Don’t you 
think it would be better to give it to them gradually?” I said, “I 
really do not think the underwriters care very much whether they 
get it gradually or not, but I believe it could be taken care of in 
either case.” That is all the consulting Mr. Hurley did with me 
about it. 

Mr. Chindblom. Did he tell you what he was going to do? 

Mr. Chubb. He told me in such a general way that I rather in¬ 
ferred that he would. I go out of the Shipping Board as soon as 
the war was over. I put in my resignation to take effect as soon as 
1 could get the department organized to go on without me. 

Mr. Edmonds. Do you really think that as these ships, the million 
or two million tons a year, were sold and went out into the market, 


MARINE INSURANCE. 343 

everything being equal in the way of rates, and so on, that they 
could be taken care of in this country now? 

Mr. Chubb. I think they could still be taken care of. Until you 
try a tiling you never quite know, but I think you will find that is 
the opinion not only of myself but of other men who are pretty 
well qualified to pass an opinion. 

Mr. Edmonds. If the risk was spread properly over a number of 
companies, none of them would have gone wrong on any one steamer, 
and your premiums would make it up on them. 

Mr. Chubb. You have got a very big spread there in the Shipping 
Board, and for one price they carry their own risk. You have got 
that very big spread on a uniform type of boat. If you are are not 
given a rate that is adequate you may not want to write such a big 
loss, because you have got a pretty big spread. If you do not have 
the spread you can not write at all. That is the trouble. 

The other point I wanted to talk about is why I think the hull 
business went to London. The hull business went to London very 
largely through a power of the broker, and by that I do not mean 
the power of the American broker, but I mean the power of the 
English broker. It went there, as I told you, when I first came down 
town, and it was going there in very big amounts. Since I have been 
in business I have made two trips to London. I was over there once 
in 1908, and Mr. Haslup, who was an underwriter for an independent 
company, and was writing American business, asked me to come in 
and talk to him. They were doing not only ocean business, but 
writing our sound lines over there. He said to me, “ I have been 
swindled on this business.” I said, “ What is the trouble?” He said, 
Look at this valuation. Here is a boat that is valued for hull at 
$250,000, and she cost $500,000.” I said, “ Mr. Haslup, where did 
you get that information that she cost $500,000?” He said, “ I know 
it.” I said, “ I will tell you it cost a million and a quarter.” That 
was an indication of the way they did it. 

And why could they do it that way? Mr. McKee told me yes¬ 
terday that Mr. Sedwick, who is an important broker in London 
handling Mr. Mather’s business told him that in 25 years he had 
never received a remittance from Mr. Mather, but that Mr. Mather’s 
American business had always taken care of the premium on the 
new business. If the American hull business was a small business, 
it was in particular trades; it was not a spread of business. It was in 
the coastwise trade, and it did not come over good, so it was not very 
much of a temptation to the American underwriters to go into it. It 
goes over to London and it goes into the hands of a broker like 
Wallace Fabar, but it is an enormous English business, and he slips 
on a fleet of American vessels at the end of a lot of English vessels, 
and he comes to an underwriter and the underwriter sees that fleet 
and he says, “I will not take it”; and he gives up the slip with all 
the other business on it. If the American business is a small part 
of the whole business you can go on doing it almost indefinitely, but 
if the American business became 50 per cent of the whole business, 
and he wrote it below cost, he could not afford to take that attitude. 
That is why I think the situation in the underwriting must correct 
itself. 


344 


MARINE INSURANCE. 


Mr. Chindblom. What is the purpose of that English broker in 

doing that? . . 

Mr. Chubb. To get a commission, and nothing else. If the busi¬ 
ness is not placed there he does not get a dollar’s worth of com¬ 
mission. 

Mr. Edmonds. As I understand, he forces the underwriter to take 
this risk along with the balance of the insurance, in order to get the 
commission? In other words, he gives him a bad risk along with 
the good risks, because they take the business? 

Mr. Chubb. I know of one specific case where the Canadian Pacific 
fleet and some other good fleet were made the head of the slip and 
the tail of the slip was a small American fleet, and the American 
market lost that fleet, but we would have been fools to have kept it. 

Mr. Chindblom. But the rates were low on the American fleet. 
Could they not have advanced them some ? 

Mr. Chubb. Who? 

Mr. Chindblom. The English companies? 

Mr. Chubb. The point is that if I can quote lower than some one 
on something I can get this good commission. If he gets somebody 
to go lower, good night to my commission. That is only one of the 
reasons. But it is a reason. 

In the second place, on the hull business to-day, in the State of 
New York we are paying a tax of, I think, on a 5 per cent rate, as 
estimated. I made use of it in this committee report here. We paid 
a tax to all our States of something like $125 on a loss of $100,000, 
at 5 per cent, and if England makes a tax of 25 per cent on the same 
premium, they have got an advantage of $100 on that risk. That 
is some advantage. It is not a tremendous advantage, and yet, if 
I get a lot of hull business herein and hereout on a 3 per cent profit, 
I would think it was a very nice business to cultivate. 

Mr. Edmonds. Is the hull business generally written by the year? 

Mr. Chubb. Practically altogether. 

Mr. Edmonds. Not in longer terms than that? 

Mr. Chubb. No; it is never written in longer terms. 

Mr. Edmonds. A year is the limit? 

Mr. Chubb. A year, and they have what they call the continuation 
clause for a boat in port. 

Mr. Edmonds. Is it your idea that the foreign underwriters, in 
taking out this hull insurance at the present time, will gradually find 
out that they are basing their premium rates on the wrong basis, and 
our market will again become active? 

Mr. Chubb. I feel very confident of it. I do not know when that 
will take place. It takes a long while. You do not get your claims 
on hull policies until a year after you have written your premium. 

Mr. Edmonds. It would occur much quicker if the ships of the 
Shipping Board were out in private hands to-day ? 

Mr. Chubb. Yes; but the situation can cure itself, in my opinion, 
by adverse experience. If the low rates are right they have come to 
stick. 

Mr. Tiiacher. It may be interesting to the committee to know 
that in some of the States where a vessel is registered it pays a triple 
tax on the same premium. 


MARINE INSURANCE. 


345 


Mr. Chubb. That is true. 

Mr. Chindblom. Explain that a little more fully. 

Mr. Chubb. The States have different systems of taxation. For 
instance, suppose I am writing a policy in New York. No matter 
where the property is located, the tax comes to New York. Some 
of the other States say that if you write property in that State, no 
matter where you write it, you pay a tax on it, so they get you going 
and coming. The only way is to write that risk in that State where 
it originates and get it out from New York. Of course that can be 
done, but it causes trouble. 

Mr. Edmonds. Do you tack that on the assured now; put that 
in the policy ? 

Mr. Chubb. No; we can not, because the protective situation will 
not let us. I am frank to say that if we could we would. 

Mr. Edmonds. Go on. 

Mr. Chubb. Those are the only explanations I have. One other 
point is this. I think you have got to recognize that the American 
underwriting companies have not yet gotten very great experience 
in writing hulls with world-wide privileges. There have been prac¬ 
tically no American fleets of that kind, so the foreign underwriter 
has more experience in that respect than we have. So it may be 
that his guess may prove right. If it does, we may have to change 
our laws. I do not think so. I have had a good deal of experience 
in other underwriting, and some little in ocean. 

Mr. Edmonds. Have you some more suggestions to make there? 

Mr. Chubb. There are one or two points I wanted to bring up as 
to that, but I can take them in any order you like. 

Mr. Edmonds. Go ahead and give them. It will keep your state¬ 
ment connected. 

Mr. Chubb. I want to say a word on the question of disabilities. 
There is no disability that an American company has that is not 
shared by the foreign-represented company to-day, but there is prac¬ 
tically no disability in doing American business that the American 
and admitted companies have that is shared by the foreign non- 
admitted company, although they have one or two such as cabling. 
I think they have one or two disabilities that more or less work out 
except as to equality, that has been brought about by this 3 per cent 
Federal tax, which has added a 3 per cent expense ratio to the for¬ 
eign companies doing business, particularly on hulls, that they did 
not have before, and which, at best, is purely an equalizing tax. I 
think that you will find that it is an equalizing tax, or somewhere 
near it. 

Mr. Edmonds. That, of course, does not reach exported insurance. 

Mr. Chubb. We want it done. I do not believe there is a single 
broker to-day that is not paying that tax on the business he places 
over there. I spoke to one of them about it and he said, “ My opin¬ 
ion is that it is not legal, but if we pay it now, we can get it out of 
the shipper. If we do not pay it now, if the Government comes 
down on us 10 years from now “there will not be anybody to collect 
it from,” so they are paying it. They are not paying it on exported 
business, but very small part of the marine business is exported 
business. 


346 


MARINE INSURANCE. 


I have heard a great many suggestions here with regard to im¬ 
proving conditions, and I have thought about them a great deal. 
I have not seen one that I believe will help the situation. It has 
been suggested that we can by having a regulation, Federal regu¬ 
lation— 

Mr. Edmonds. No; supervision. 

Mr. Chubb. Excuse me. 

Mr. Edmonds. Our committee does not believe in regulations. We 
believe in supervision. 

Mr. Chubb. Well, supervision, which, of course, under a different 
administration may change the regulation and further supervision 
by the Federal authorities. We are oversupervised to-clay. 

I can see absolutely no gain to us from a Federal supervision. I 
can not see one single place where it would be a particle of use to 
the companies, nor can I see any place myself where it would benefit 
the public or the shipowning community. I know the committee* 
feels the other way about it, but I have thought about it a great deal. 

Mr. Edmonds. No, the committee is absolutely open minded about 
it. Of course, we have gone through a shipping investigation, and 
we naturally came down from regulation to supervision, and we 
rather felt that that was a remedy decidedly to be desired in the 
shipping business. It might be possible that it is desired in the 
insurance business, and we are trying to find out whether that is 
true or not. 

Mr. Chubb. If you found a condition of extortionate rates, or a 
condition of unfair practices, that would be one thing. I do not be¬ 
lieve you gentlemen in all your im^estigation—certainly none of you 
have given expression to the thought—have found that there have 
been either on the part of the companies here. 

Mr. Chindblom. Your belief does not go to such matters as 
statements, reports, and things of that sort for your own infor¬ 
mation? 

Mr. Chubb. Yes, I do; I go absolutely to that. Mr. Evans testi¬ 
fied yesterday that he was spending $10,000 a month furnishing 
the States with information. Of course, a good deal of that is 
for his fire business, but we are up against it in the marine busi¬ 
ness, and we are competing with companies that do not have to 
do anything of that kind. In Germany they do not have regula¬ 
tion when it comes to marine companies, because marine insurance 
is more international in its character and they can not regulate 
it and they do not regulate it. I am not advancing Germany as 
a model, but that is a fact. In England they are absolutely free. 
In Denmark I understand they are free of regulation, although 
I am not so sure. If you would say, “The Federal Government 
will take over the regulation of marine insurance and take it away 
from the States, I would say that is the right thing to do, because 
it is essential that we have one central person to go to, and it should 
be worked under similar laws, but you can not say that unless you 
get a constitutional amendment through, that I see. 

You were speaking about the advantage of using this Webb- 
Pomerene Act so that we could meet and have conference agree¬ 
ments without fear of the law. I am not a lawyer, as you know, 
but perhaps some of you gentlemen can tell me how is that going 


MARINE INSURANCE. 


347 


to protect our men when there are to-day merely one or two States 
where we are doing business. If a State says we can not do it 
how would that act protect us against that State unless the in¬ 
surance is under Federal supervision? I do not think it could. 

Mr. Edmonds. The law, as I understand it, has stated that marine 
insurance is of a national character, and I do not believe that any 
State would be able to interfere with a company—not exactly with 
a company, but an association formed under an act like the Webb- 
Pomerene Act, because, as a matter of fact, no matter what trust 
laws New York might pass, these companies like the Eastern Steel 
Co., or some others like that, composed of eight or nine steel man¬ 
ufacturers who are now in the position to export, have formed 
combinations. In other words, the law against combinations in 
restraint of trade is wiped out as far as export trade is concerned, 
and I doubt very much whether any State would question the right 
of the General Government to give men the right to combine in 
export trade, and this would be export trade because it would vir¬ 
tually be insurance on something that was going outside of the 
country. 

Mr. Chubb. Of course, and the ships themselves are in the same 
line, Mr. Edmonds. However, I give that point as it strikes me. 

You asked us in your questionnaire if we could make any other 
suggestions. I do not have any suggestions to make except that 1 
do believe in the suggestion of the committee that a good District 
of Columbia law would be an example. I have been up lately be¬ 
fore the New York Insurance Department of Connecticut, taking 
up the question of their marine insurance laws and trying to show 
them that they have got to get away from fire, casualty, and every¬ 
thing of that kind because the situation is different, and I have 
spent a good deal of time with them and with the New York de¬ 
partment, and they are fairly receptive of that idea and recognize 
it is so. Some of the States do not recognize it at all. 

Mr. Edmonds. I think we have been trying to help you along with 
the New York department considerably. 

Mr. Chubb. Yes; and I think that such action by Congress would 
give it a stamp that would be of great help to us. 

There is just one other thought I had that has a possible con¬ 
nection with it. I would not bring it up, because it presents such 
difficulties, if you had not said that difficulties are the things you 
are ready to contend with. I have wondered whether it would be 
possible to have a Federal law, so that Ave could incorporate'a com¬ 
pany, a subsidiary company if you please, in the District of Co¬ 
lumbia to write hull business, and that company so incorporated 
under the supervision only of the Federal authorities and subject 
only to the regular Federal tax, Avith no premium tax, but a regular 
Federal tax. I haA-e wondered whether that could be possibly done, 
and then perhaps two or three of us would go back and say, “We 
will form such a company to Avrite our hull business in that way— 
free from these annoyances and free from taxation in every way. 
I think it would be possible to do it, but it presents a great many 
difficulties to work out. 

Mr. Edmonds. It might be advisable to look into that, Mr. Chubb, 
and see. The load-line legislation, of course, you are in favor of? 


348 


MARINE INSURANCE. 


Mr. Chubb. Absolutely. Apart from being an underwriter, I am 
absolutely in favor of it. 

Mr. Edmonds. Would it be to your advantage to have a reinsurance 
exchange that all the companies belonged to? 

Mr. Chubb. Well, I think there is no reason that we should not 
have it now. 

Mr. Edmonds. I do not see that there is, but some people would. 

Mr. Chubb. That has been done with one or two classes of busi¬ 
ness, you see. You must remember, Mr. Edmonds, that the present 
condition in New York is the condition of the world. That is to say, 
the marine insurance business has expanded beyond the education 
of the underwriters. That is to say, we have got a great many new 
companies, and there are a great many new ones in London. I think 
there are 30 or 60 new companies in London. Norway and Sweden 
are full of new companies. France is full of new companies. So we 
have got an expanded market. There is no way on God’s green earth 
to keep this here. The marine underwriters will have a difficult time 
for the next few years. I think a great many will draw together in 
the marine insurance. Take, for instance, in our own office. Ten 
years ago we placed very little special reinsurance. When we found 
we had on a bill more than we could bear we placed very little in this 
market. To-day we place practically all of it in this market. 

Mr. Edmonds. To-day the insurance in this country is in the hands 
of probably 9 or 10 of the companies, which are old and well-known 
companies—that is, marine insurance companies—while some of 
them have gone to new lines. 

Mr. Chubb. I think the premium may be largely under control, 
because there are a great many more companies. 

Mr. Edmonds. Yes: there are a great many more companies, but 
most of the companies that went into it just for the war period have 
gone out very gradually. No doubt there are a number of companies 
that will stay in the business. What do you think of the idea of 
having some kind of reinsurance exchange where views could be ex¬ 
changed, or even, so far as that is concerned, if you had the privilege 
of dividing up a percentage of the export business, like under the 
Webb-Pomerene Act? 

Mr. Chubb. I think we have that privilege to-day, Mr. Edmonds. 
We are doing that in the burlap deal, and I am sure none of us think 
we are doing anything illegal. I am sure I do not, or I would not 
be a party to it. 

Mr. Edmonds. I am not a lawyer, so I do not know. 

Mr. Chubb. We certainly do not think we are or we would not 
do it. I would not come down before you and testify if I thought 
it was illegal. 

Mr. Edmonds. As I have told you in the first place, I have been 
in business all my life and I have gone into arrangements, and I 
know something about them. I do not consider that when you join 
in with certain men to do a certain business it is illegal as long as 
you do not oppress anybody. 

Mr. Chubb. Yes; as you do not conspire. 

Mr. Edmonds. As long as you do not rob some other fellow of his 
right and cut him out of business by such a system, of course, there 
is no conspiracy: it is an arrangement between men. 


MARINE INSURANCE. 


349 


Mr. Chubb. May I ask some questions about this report? I woke 
up rather early this morning and went over it. I notice, according 
to those figures, that the American companies doing business were 
reduced to 63, yet on page 4 this statement is made, “ Substantially 
the same relative importance American and foreign companies found 
to exist.” That is, between 1913 and 1918, as I understand it, 
although a large volume of business by 1918 had decreased enor¬ 
mously as. compared to 1913. Such changes as have occurred since 
1913 relative importance in the two classes of companies bear evi¬ 
dence of the fact of this greater foreign control. 

I would say you have sources of information in this committee 
that are not available to myself, but as an underwriter, coming in 
contact with things, that is a very great surprise to me, because every 
year since I have been down town the American companies have 
been growing. I feel perfectly confident of that, whether it is re¬ 
flected in the premium incomes or not. My recollection is that when 
1 wrote that article for the Foreign Trade Council, in 1912, there 
were some 30 American companies doing marine and inland of all 
kinds, and in 1918, according to this, there were 63. The New York 
insurance report, in their cable I have here, shows that the marine 
and inland premiums in 1913 were for the several American com¬ 
panies $34,000,000, for alien companies $29,000,000; in 1918 Ameri¬ 
can companies $181,000,000, alien companies $89,000,000. I recog¬ 
nize that part of that increase is undoubtedly due to inland busi¬ 
ness, but the foreign marine companies also do some portion of 
marine business, and it is very hard for me to see how that whole 
relative increase or any part of it is due to ocean marine. I simply 
do not understand how it can be. 

Mr. Edmonds. I guess the professor can tell you how he arrived 
at those figures. 

Mr. Huebner. The New York figures include motor vehicle, tour¬ 
ist package, and registered mail premiums. 

Mr. Chubb. Of course, tourist package, I suppose, is marine busi¬ 
ness. 

Mr. Huebner. We may have been wrong with reference to tourist 
package. The increase in the premium income of the American 
companies following 1913, as far as inland insurance is concerned, 
was enormous. The American premium income increased greatly 
through the motor vehicle insurance, particularly. We took that 
out and there was comparatively little change. The remarkable 
thing is that after you took out those three inland forms of insur¬ 
ance, the showing in 1913, 1917, and 1918 was strikingly constant. 
There was a slight increase, as regards these figures with reference 
to the companies that had branch offices in this country. The figure 
for the Federal was included because the Federal was considered 
sympathetic. They w T ere related, not legally controlled, but very 
fiosely related. 

Mr. Chubb. I want to say, Mr. Chairman, that I object to the 
Federal being put in anything but with the American companies 
all the way through, and I think I have given you good reason why 
I should object. 

Mr. Huebner. I do not mean to say that it was controlled m any 
way legally. 


350 


MARINE INSURANCE. 


Mr. Chubb. No, nor morally, nor spiritually, nor in any other way 
you can put it. That is all I have to say, Mr. Chairman, and I am 
very much obliged to you for your courtesy. 

Mr. Edmonds. We had to draw these companies up into some sort 
of line for reference. 

Mr. Chubb. I understand. I do not object to some sort, but I 
do not like your line. 

Mr. Edmonds. You do not like our division, and yet it seems to 
me that it was a very natural division to put you and Mr. Apple- 
ton— 

Mr. Chubb. It may have seemed a natural division, but I submit, 
under the facts that I have given you, and every one of them can 
be verified, that the division ought to be changed as far as the 
Federal Insurance Co. is concerned. 

Mr. Huebner. There was one thought in mind, and one that was 
taken into account in making that classification, and that is with 
reference to reinsurance. The Federal reinsurance is a very large 
amount, according to the data. 

Mr. Chubb. That is on the basis of its exchange. 

Mr. Huebner. The reinsurance premiums reported by the State 
of New York for the Federal amounted to $7,279,000, in round fig¬ 
ures, out of a total gross premium of $12,514,000, but from that must 
be deducted $1,295,000 or returned premiums. In other words, of 
$11,219,000, the amount of net premiums, $7,279,000 was reinsured, 
leaving net premiums of $3,939,000. 

Mr. Chubb. Yes; about $4,000,000. 

Mr. Heubner. Your questionnaire stated, under question 14, that in 
your reinsurance with other companies during 1918, as far as for¬ 
eign alien companies were concerned, 77.47 per cent was reinsured 
with foreign admitted companies and 14.5 per cent with unadmitted 
companies, or there was placed with foreign admitted and unad¬ 
mitted companies a total of 92 per cent of your total reinsurance. 
That you were good enough to explain further, and that is true of 
all the questionnaires you sent in, and it is also for the British 
companies, that the large percentage of the foreign admitted com¬ 
panies is due to the exchange of business between this company, the 
Federal, and the foreign companies having Chubb & Son as their 
managers. 

Mr. Chubb. Surely. 

Mr. Huebner. Nothing invidious was thought to be suggested. 

Mr. Chubb. Then do not use the word 44 control.” 

Mr. Huebner. We used the term, 44 controlled and closely allied,” 

and I thought 1 made it clear yesterday in reply to Mr.- 

that there is a distinction between the term 44 controlled ” and the 
term 44 allied,” or, as I said yesterday, as I recall, 44 sympathetically 
allied.” I did not mean to say that the Federal was controlled like 
the Queen or like the American & Foreign, and some other compa¬ 
nies where the questionnaire shows that practically all the stock is 
held abroad. 

Mr. Chubb. It is not controlled, as I expressed it, in any way, 
sympathetically or in any other way. 

Mr. Edmonds. I notice you did not swear to your questionnaires. 
Everybody else did. 




MARINE INSURANCE. 


351 


Mr. Chubb. I will be very glad to do that. 

The Chairman. I presume it was an oversight. 

Mr. Chubb. They spoke to me about it, but inasmuch as there was 
no form I said, “ I will write a letter to go with it.” I shall be 
very glad to swear to it. 

Mr. Huebner. Mr. Chairman, may I also add that as to the 
American companies—that is, with American charters of any real 
importance—there are not many really important marine companies 
with American charters. There is none of the companies, to my 
knowledge, as far as we have questionnaires, where the proportion 
of the total reinsured with foreign companies, admitted and unad¬ 
mitted, is so large as the 92 per cent of the Federal. 

Mr. Chubb. No; that was exchange of business. 

Mr. Huebner. That was true as to the line of business to which 
the term “ allied ” was used and I never had in mind legally controlled. 

Mr. Chubb. I believe, as the result of this, Mr. Chairman, the com¬ 
mittee has obtained a very thorough picture of the matter. I do 
not care what they call it, so far as they understand the facts. 

Mr. Edmonds, Another thing that struck me as very peculiar was 
that in going over these questionnaires we found that virtually one- 
third of the premiums were written here and two-thirds went abroad. 

Mr. Chubb. Well, I am surprised at that myself. 

Mr. Edmonds. And the Federal Co. followed so closely to that one- 
third and two-thirds that sometimes it was a question in our minds 
as to whether you or the British companies or somebody had not 
gotten together and made an arrangement by which you would 
divide the business up. 

Mr. Chubb. All my arrangements have been under a United States 
company and they have been for services at a high rate of com¬ 
pensation. 

Mr. Edmonds. I am going to be very frank with you. There is 
another question that came up in our minds in looking over the 
cotton and burlap pool, and that is the fact that Chubb & Son, 
Appleton & Fowler seemed to have a majority interest in each one 
of those pools. 

Mr. Chubb. Yes. 

Mr. Edmonds. When we came to look it up we found Chubb & 
Son, the Federal Co., with four foreign managerships, we find 
Appleton, the United States Lloyd’s virtually in the same position 
as Chubb & Son; we find Fowler, the Columbia, virtually owned 
by foreign interests; we find Simpson, the American & Foreign Co. 
virtually owned by foreign interests. It seemed that the old line, 
or the company that had no affiliations in the London market, did 
not in any way have a control in these pools or this arrangement. 
If it was" a question of voting in this arrangement, of course, we 
could not tell that. That has developed since we went along, but if it 
was an absolutely control of the burlap and cotton business the 
American companies simply got the tail end of it. 

Mr. Chubb. As a matter of fact, the control is not exercised in 
that way at all, Mr. Chairman, as I think perhaps you know. 

Mr. Edmonds. That is what appears from the testimony, but you 
can take our end and look at the statements as we had it, and you 
can see that we said to ourselves: “What is happening here?” 


352 


MARINE INSURANCE. 


Mr. Chubb. My only anxiety is to try to make my position, as I 
see it, absolutely clear to you. I appreciate that the committee, 
from the start to the finish, in their questionnaires have been fair- 
minded. There is nothing tricky in the questionnaire; there is noth¬ 
ing there we can object to in any way, but naturally when we heard 
that Congress was going to investigate us we had been used to in¬ 
vestigations or talk of them, and we were anxious to know what was 
going on. 

Mr. Edmonds. This committee is working on reconstruction prob¬ 
lems, and the whole committee in every line has been very busy for 
six months now, trying to frame up some vind of a reconstruction 
program that is of advantage to American merchant marine, and 
you gentlemen recognize that one of the very important things in 
shipping is insurance. 

Mr. Chubb. Yes, it is. 

Mr. Edmonds. And the insurance question was given to us to in¬ 
vestigate with the idea of producing reconstructive legislation, be¬ 
cause a business that has had an absolutely free hand may have- 
abuses or it may have ways of building it up. 

Mr. Chubb. Unquestionably. 

Mr. Edmonds. We gathered these statistics together from different 
sources and we had many sources in getting them, and I think you 
insurance men stick together pretty well. It is pretty hard to get 
much out of you. 

Mr. Chubb. I do not know. You have gotten everything I have 
got to give. I can give you that. 

Mr. Edmonds. We had six weeks of hard work trying to root 
around a little bit and find out something. 

Mr. Chubb. I quite appreciate, however, Mr. Edmonds, that every 
one of those questions required a great deal of work in the office. 

Mr. Edmonds. They did, and we have no desire to send them out to 
you again. 

Mr. Chubb. I hope not. 

Mr. Huebner. I might say that we have just a few not yet sent in 
because they are getting the material together. 

Mr. Chubb. It means discontinuing certain departments to get 
this information. You know that. The way we keep our classifica¬ 
tions, it has got to be all dug out. 

Mr. Edmonds. Then we went along a little further, after making 
inquiry around in several ways we found there w T ere four very 
large brokers that seemed to have a very ample line of both English 
and foreign and American brokerage and seemed to handle the busi¬ 
ness exactly as they pleased, and we made a note of those, and I 
realize that the broker is, in the present condition of the business, in 
a very advantageous position. 

Mr. Chubb. I think he always has been, Mr. Edmonds. 

Mr. Edmonds. Yes; and yet at the same time my business was 
going to the brokers. 

Mr. Chubb. When I started in business, my brother, who was 17 
years older than I, wanted me to go into the marine brokerage be¬ 
cause it is a larger and better field. 

Mr. Edmonds. I can see the advantage of the brokers’ position, and 
we felt that possibly something might be done along that line to 


MARINE INSURANCE. 353 

regulate them, but, of course, with an international business it is 
going to be a very hard proposition, because you have a competition 
which you can not regulate when you count these-foreign associations. 

Mr. Chubb. That is absolutely so. It is different from any other 
class of business. 

Mr. Chindblom. Another branch of this investigation which has 
been conducted by the main committee is with reference to legisla¬ 
tion designed to give attractiveness as an investment feature to mort¬ 
gages on ships. Have you any views on the subject that you would 
care to express while you are here % 

Mr. Chubb. I have not got them very well formulated to do that. 
I know about the bill. One of the New York bankers who was con¬ 
sulted sept it around to me. 

Mr. Chindblom. Would that legislation, if any were passed, or 
any action taken of this character, affect the insurance situation? 

Mr. Chubb. It ,is quite possible it might. 

Mr. Chindblom. Are you prepared to say anything about that? 

Mr. Chubb. No; I do not think I am sufficiently conversant with it 
to express any. opinion at the present tipie. 

Mr. Edmonds. Is it not time, Mr. Chubb, that the competition that 
exists between the insurance companies would bring it to a level 
anyhow ? 

jVIr. Chubb The only question is,.Mr. Edmonds, that if,.owing to 
the passage of the Morgan bill, it should prove by experience that 
certain claims you had you could collect, w,e will say, from an Ameri¬ 
can vessel that was not mortgaged, and that you, coidd collect those 
claims that the shipper makes, because, as a matter of fact,, there 
are a good many claims that an insurance company pays .its shipper 
that are afterwards recoverable from the ship, and properly so— 
there has been a case recently decided on that very question by the 
Supreme Court, where a marine insurance company advanced money 
under a loan receipt, and took recourse against the ship for,bad han¬ 
dling of cargo. That, I believe, is right in line with public policy. 
I do not think a ship should be exempted from her own carelessness, 
and I think that if it was found that on certain lines of shipping 
such a commodity as flour, for instance, that if it was damaged you 
could not recover on a mortgaged boat for the damage, and you 
could recover on an unmortgaged boat, then I believe you would get 
a higher rate on the mortgaged boat. On the other hand, I do not 
believe it is public policy to give a manager an excuse for mismanag¬ 
ing his boat, I had that very point up with the Shipping Board and 
I prepared something on that very thing. 

We put up our private opinion that the Government should not in¬ 
sure them, for this reason, that two boats are in exactly the same class, 
in the same trade, and you come to me as an underwriter, and one 
I will insure at 3 per cent, and the other I will decline at 5. Why ? 
Because one owner is a careful owner and will employ good men, and 
one is not. If the Government assumes them all and insures them all 
at one rate, there is no incentive to the careful man. The same thing 
is true with regard to the mortgaged boat. I do not think it is best 
to do that, but that is just one opinion. I do not think we should 
bring about such rates as would excuse a man of his own carelessness, 
which is an incentive to careless operation. 

160770—20-23 


354 


MARINE INSURANCE. 


Mr. Edmonds. I raised the question because you are here to-day' 
and I think there is not in the marine-insurance world any man whose 
opinion is more valuable and desirable on every phase of the subject. 

Mr. Chubb. Thank you. 

Mr. Edmonds. If we should find that on that mortgage phase of 
the. question we should want to hear from you further, perhaps we 
could find some way of doing that at some other time. 

Mr. Chubb. I would be very glad, of course, to come down on any 
subject that any of you gentlemen want to see me on at any time. 

Mr. Edmonds. Let me tell you something. We have had three bills 
introduced on this mortgage problem, and every one of them contains 
a provision which allows a stated sum or a percentage to be named 
ahead of the mortgage. 

Mr. Chubb. Yes; I thought there was some provision of that kind, 
but I was not familiar with it. 

Mr. Edmonds. That would allow a man to make a mortgage on a 
ship, we will say, worth $750,000, if he wanted to borrow $250,000 
on it, in order to handle the small matters that would come up, that 
would interfere with the operation of the ship, they would be al¬ 
lowed, if they could get anybody to take the mortgage, of course, stat¬ 
ing they would want a reservation of $50,000 or $100,000 for liens 
ahead of the mortgage. Do you understand ? 

Mr. Chubb. Yes; I understand. 

Mr. Edmonds. And then it would be followed next by the mort¬ 
gage for $250,000, and then anything after that would have to follow. 

Mr. Chubb. I understand, but if you start captious criticism of 
these things, you never get through a big subject of this kind, and I 
do not want to express an opinion on anything of that kind unless I 
know what I am talking about. 

Mr. Edmonds. I do not think there will be any more hearings on 
insurance, so you can go ahead in your usual manner and we will 
consult with you later on any proposed legislation. 

(Whereupon, the hearing was adjourned.) 




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